<THE FOOLISH FOUR>

Let's Talk Money, Part 2
Ann Coleman
(TMF AnnC)

Reston, VA. (September 23, 1998) -- Hey, wanna make some real money?

Wanna be a millionaire?

Like the Lotto ads tell you, you can't win if you don't play. Of course, they don't mention that you can't lose if you don't play, either. I'll take on the evils of the lottery some other time, but today let's discuss becoming a millionaire -- not overnight, but over the next several thousand nights.

Can something as simple as the Foolish Four in an IRA make YOU a millionaire?

Actually, any investment can become a million dollars -- the question is, can the Foolish Four make you a millionaire while you are still able to enjoy it? Just how long would it take?

To simplify things, let's just consider an IRA where one person contributed $2000 a year.

Basic assumptions: An IRA starting with $2000 today, compounding at 19.48% per year with $2000 cash added at the end of each year and $70 deducted each year for commissions and IRA fees.

Hm, 19.48%. Isn't that a little, ummm... precise? I picked that rate because it is the Foolish Four's Average Annual Rate of Return (or CAGR, for compounded annual growth rate) for the past 30 years. The rate is unlikely to be the same over the next 30 years, but the past 30 years includes two 5 year stretches where the Foolish Four underperformed the Dow and Standard & Poor's 500 Index, and the two worst years for investors since the depression ('73 and '74), so a lot of adverse time is included as well as the present good times. That 19.48% compares to 12.40% for the Dow and 12.12 for the S&P 500 over the same period.

OK, starting today with $2000 and contributing just $2000 a year (that's $167 a month!) you can be a millionaire in... ta-DAH!... 26 years. Not fast enough? Get married. A couple can contribute $4000 a year and hit the one million dollar mark in 22 years. Twenty-two years?!? That's only 4 years faster! Sorry, the miracle of compounding needs TIME more than dollars.

For contrast, using an index mutual fund (these have outperformed 91% of all managed mutual funds over the past 5 years) you wouldn't reach the million dollar mark for 38 years.

What if you've been contributing to an IRA for a while? Well, if you've got $50,000 socked away already and can keep up your $2000 a year contributions, you'll hit that magic number in 2014, 16 years from now (vs. 26 years with an index mutual fund).

The secret is that a very modest amount, just $167 a month, every month, year in and year out, can make anyone a millionaire within a normal working lifetime, provided you can generate the kinds of returns that the Foolish Four has been generating over the past 30 years.

Next week we will be looking non tax-deferred accounts -- that's the real answer to how to shorten the time until you're a millionaire.

Fool on and prosper!

Current Dow Order | 1998 Dow Returns

What Happened to Robert Sheard?

09/23/98 Close
Stock  Change   Last 
 -------------------- 
 UK   +1  7/8   42.31 
 IP   +  15/16  45.31 
 MO   -   9/16  47.44 
 EK   +   5/8   84.06 
  
 
 
                    Day   Month    Year 
         FOOL-4   +1.42%  11.69%  13.15% 
         DJIA     +3.26%   8.16%   3.11% 
         S&P 500  +3.52%  11.34%   9.86% 
         NASDAQ   +3.68%  17.41%  12.09% 
  
     Rec'd   #  Security     In At       Now    Change 
  
  12/31/97  206 Eastman Ko    60.56     84.06    38.80% 
  12/31/97  289 Int'l Pape    43.13     45.31     5.07% 
  12/31/97  276 Philip Mor    45.25     47.44     4.83% 
  12/31/97  291 Union Carb    42.94     42.31    -1.46% 
  
  
     Rec'd   #  Security     In At     Value    Change 
  
  12/31/97  206 Eastman Ko 12475.88  17316.88  $4841.00 
  12/31/97  289 Int'l Pape 12463.13  13095.31   $632.19 
  12/31/97  276 Philip Mor 12489.00  13092.75   $603.75 
  12/31/97  291 Union Carb 12494.81  12312.94  -$181.88 
  
  
                              CASH    $754.73 
                             TOTAL  $56572.61