NOTES FROM EIGHT STEPS TO SEVEN FIGURES
BY CHARLES B. CARLSON
Carlson took 170 individuals into account who invested their way to $1 million. He surveyed ordinary people who saved their earnings.
Buffett – Washington Post, American Express, Coca-cola, Well Fargo, Gillette
Example: A.J. Wright – started at age 25 and had $1 million by age 55
Philosophy: “Save 10%”
“Spend the rest after taxes”
Example: Saul is age 76 with $2 million. He didn’t start investing until he was in his sixties.
Philosophy: “Buy blue chip stocks with no intention of selling”
Most don’t reach seven figures because they want to consume today and still have seven figures later.
To participate in the survey the person needed $1 million in investable funds excluding their homes.
o 80% were male
o Average age was 60 years old
o Average was married 32 years
o Average income was $151,500 annually
o Median income was $115,000 (1/2 below ½ above)
o Most are retired and receive income from investments
o 1 in 5 are divorced (national average is 1 in 2)
o Average number of kids is just under 2 per household
o 80% have undergraduate degrees
o 50% have advanced degrees
o Average number of jobs held is 3 (national average number of jobs held is 13)
o Average years at current job is 19
o Less than 30% maintain a monthly budget
o 40% do their own taxes
o They’ve investing on average for 30 years
o Average portfolio size is $2.7 million
o More than 85% had no investment experience prior to starting
o On average they hold 44 stocks
o Only 3% have ever declared bankruptcy
o 60% said their parents were important or very important influences on their investing
o More than 80% classified their parents as frugal
o Only 18% classified their financial records as average or below average
o Only 19% have ever bought options
o Only 6% have ever bought futures
o Less than 30% own gold
o Only 15% have ever sold a stock short
o 48% use the advice of brokers and 15% use the advice of investment newsletters
o Of those that use brokers, more than 40% use a traditional broker (full service)
o 1 in 5 belonged to an investment club and have done so for an average of 8 years
o 60% admitted to acting on a hot tip
o These tips panned out about 20% of the time
o Two-thirds track their investments with a personal computer
o One-third inherited money but in most cases it had little effect on their finances
o Most used money saved from their paychecks
o 70% spend $500 or less on investment research
o More than 35% spend $250 or less on investment research
o Only 9% spend more than $1,000 per year on investment research
o Most spend on average 12 hours per week tracking their investments or about 2 hours per day which is ½ of what most Americans spend watching television each day
o More than 50% call themselves growth investors
o Around 25% call themselves value investors
o Around 16% call themselves growth and value investors
o Well over 50% invest at least monthly another 28% invest at least quarterly
o A slight majority consider themselves to be conservative, 26% aggressive, 14% both
o Most fear a prolonged bear market and taxes most
o 75% hold their investments for at least 5 years
o 40% hold their investments for 10 years or longer
o Only 8% hold their investments for 1 year or less
o 48% have an average tolerance for risk
o 38% have an above average tolerance for risk
o 13% have an below average tolerance for risk
o 1 in 4 attempt market timing
o 70% consider taxes important or very important
o ¾ invest in what they know
o 1 out of 2 does believe individual investors can beat the market consistently
o Most participate in a 401(k) and invest the maximum
Common Success Factors across All
1. Start now
2. Establish a Goal
3. Buy only stocks and stock mutual funds
4. Swing for singles
5. Invest every month no matter how small the amount
6. Buy and hold and hold and hold
7. Take what Uncle Sam gives you (401(k), IRA, Roth IRA)
8. Limit shocks to your finances
Example: Robert Cole age 56
Started at age 28
Currently has $1.2 million portfolio
90% in 401(k)
Took 12 years to reach $50,000
Took 15 years more to reach $1 million
Fear drives most to invest.
Example: Peter H. started investing at age 47
At 58 years he now has 7 figures
His advice is “Just right that first check.”
Step 1: Start Now
I don’t have the money to invest.
Most millionaires started small.
They stretched their paychecks.
They paid themselves first, even if it’s only $5 or $10. Get in the habit and then it grows.
They are frugal. They look at their spending habits. They don’t eat out. They pay cash. They drive cars until they stop.
They want a better financial future more than things.
Some worked second jobs.
They use “found money”. Gifts, tax refunds, home or property sales, inheritances
I don’t have enough money to invest.
You just have to find the vehicles.
DRIPs (minimums rarely above $100)
401(k) (as little as 1% pre-tax)
Mutual funds (monthly ACH purchase)
I don’t know enough.
You must seek out information.
Books, newsletters, magazines, investment clubs, T.V., radio, internet
Internet and library are the best
Continuing education classes at community colleges
I don’t have the time.
The average adult spends roughly 28 hours per week watching T.V.
You must look at your priorities.
Most millionaire investors spend an average of 12 hours per week.
I’m too young.
If time is the most important part of this process, then how can you be too young?
Use stocks to teach a child.
Registration of child’s account:
In your name – you control
Unified Gift to Minor (UGMA)
Dividends at child’s rate
At age of majority – control of account goes to the minor
Offer kids matching funds
Use DRIPs (Coca-Cola, Walt Disney, Hasbro, Mattel)
I’m too old.
Many millionaires didn’t start investing until their 50’s, 60’s and 70’s.
Average millionaire portfolio was nearly $2.2 million and took an average of 30 years to accumulate.
The first million takes much longer than the second or third million.
If it takes 22 years for the first million, it will take only 7 years to accumulate $2 million with no further investment at 10%.
Beginning at 35 years of age you need to invest $650 per month to reach $1 million by 60 years of age.
Beginning at 40 years of age you need to invest $1,200 per month to reach $1 million by 60 years of age.
Beginning at 45 years of age you need to invest $2,200 per month at 11% to reach $1 million by 60 years of age.
I don’t have a broker.
You don’t need a broker.
Dividend Reinvestment Plans (DRIPs)
The market is too high.
There is never a bad time to invest and get started.
Step 2: Establish a goal.
Any goal, it really doesn’t matter what it is as long as it matters to you.
Pay for college
Maintain purchasing power
Leave good estate to children and grandchildren