Automatic Millionaire Book - 10% annual return

B.E.N

Hi,

I've just been reading that book by David Bach - the "Automatic Millionaire".

A central tenant to the calculations used in the book, is an annualised average stock market return of 10%, and I just wondered:

a) How realistic is this expectation in the medium-term (20-25 years);

b) What's the best route to achieving this? Direct share exposure, a tracker, managed fund (if so, which kind of fund - capital growth, income, etc)?

I appreciate that there are a lot of sub-questions and I thank you in advance

Ben

dunstonh

a) How realistic is this expectation in the medium-term (20-25 years);

I'm averaging over 13% since 1994 and thats on a medium risk spread.

b) What's the best route to achieving this? Direct share exposure, a tracker, managed fund (if so, which kind of fund - capital growth, income, etc)?

Direct investing, unit trusts, ETFs, ITs etc. The tax wrapper doesn't really matter too much as this point as the holdings within the wrapper are the important bit. No one fund is the best option. Single fund investing is poor investing.

The automatic millionaires are the ones that write the books and get gullible people to buy them. There is no easy way to make big money without taking big risks and hope they pay off. Even then, you need knowledge and experience to do it.

Milarky

What a 'millionare'? Not such a stupid question as it sounds. It used to mean at least 1 million USD (£500K) But that is not 'lot' of money anymore for the purposes of living the high life.

Also whatever happened to inflation reducing the real value of 'millionaire'? Isn't talk of 'millionare' simply missing the point?

B.E.N

dunstonh wrote: »

The automatic millionaires are the ones that write the books and get gullible people to buy them.

Bought it with a Gift Card I got for Christmas But I take your point. This book, however, does actually make sense - the only thing that I was unsure about was the claim of 10% average stock market returns, which sounded a bit hopeful.

I do suggest you have a read of it, because, despite the title, it's not a 'get rich quick' book - infact it's a 'get rich slowly with compound interest' kinda book, it's just got the snazzy title cos no-one's going to buy a book called 'Get Rich Very Slowly By Being Sensible And Making Long-Term Investments in the Stock Market'. Hence the G-R-Q like title

dunstonh wrote: »

I'm averaging over 13% since 1994 and thats on a medium risk spread.........There is no easy way to make big money without taking big risks and hope they pay off. Even then, you need knowledge and experience to do it.

Well, you've said that you have achieved 13% with a "medium risk spread", but, then you say that there's no way to make big money without taking big risks. If you can achieve 10% average returns, in the long term, then surely that will add up to "big money"?


Lastly, inflation will, of course, erode any gains, but as I'm looking to invest for the medium/long term, I'll have plenty of time to invest in line with inflation. E.g. A million won't be worth a million like it is now (think of Viv Nicholson - £151,000 in 1950s = £100 million maybe, now), but if I increase my yearly contributions roughly inline with inflation and pay rises, it'll hopefully starve off the inflationary effects from my nest egg.

Oh one last thing... I'm not really too bothered about being a 'millionaire' per se, I just want to be comfortable.

cheerfulcat

Hi, Ben,

B.E.N wrote: »

I've just been reading that book by David Bach - the "Automatic Millionaire".

A central tenant to the calculations used in the book, is an annualised average stock market return of 10%, and I just wondered:

a) How realistic is this expectation in the medium-term (20-25 years);

b) What's the best route to achieving this? Direct share exposure, a tracker, managed fund (if so, which kind of fund - capital growth, income, etc)?

In answer to question a, I would say it's not realistic to expect those returns within any specific 20-25 year period; safer perhaps to allow for lower annual growth and increase your savings accordingly. There is an excellent article on the subject of historic returns by Peter Temple here which might be of interest.

As to b - holding individual shares directly is by far the cheapest way to invest but can be fairly work-intensive. With good luck and judgement it is possible for a private investor to beat the market but equally it is possible to lose a lot of money very quickly.

Trackers are fine for long term regular investment - they will slightly underperform the market due to charges.

A good managed fund - one with a good manager, unconstrained by benchmarks - may well outperform. There are a lot of closet trackers in the managed fund universe, so research is vital.

A halfway house between unit trusts/OEICs and individual shares is the investment trust. These are managed funds traded as shares.

irishcharmer5

there are a lot of books like that on the market,

some are not a bad read, but take some of it with a pinch of salt, they have to say certain things to entice you to read and purchase it, still may get a few good tips from them though.

LucyTheDwarf

You'd getter better tips (for free!) on this forum, in virtually every money-related topic going! Plus lively debate, friendship, and advice with any question you ever need to ask!

nicko33

B.E.N wrote: »

E.g. A million won't be worth a million like it is now (think of Viv Nicholson - £151,000 in 1950s = £100 million maybe, now).

from wikipedia http://en.wikipedia.org/wiki/Viv_Nicholson

Vivian Nicholson (born 3 April 1936) became a public figure in Great Britain overnight in 1961 when she won £152,000 (equivalent to more than £5 million in 2005 in terms of average earnings)


in RPI terms (http://www.statistics.gov.uk/downloads/theme_economy/RP02.pdf)
I think £152,000 in Jan 1961 = £1,298,221 in Jul 2006

B.E.N

nicko33 wrote: »

from wikipedia http://en.wikipedia.org/wiki/Viv_Nicholson

Vivian Nicholson (born 3 April 1936) became a public figure in Great Britain overnight in 1961 when she won £152,000 (equivalent to more than £5 million in 2005 in terms of average earnings)


in RPI terms (http://www.statistics.gov.uk/downloads/theme_economy/RP02.pdf)
I think £152,000 in Jan 1961 = £1,298,221 in Jul 2006

If we are being technical, then I suppose your figures are more accurate. I was more thinking of how astonishing it was to have her win that amount in 1961. If someone won the same Average-Earnings related figure of £5 million today, then yes, the papers might mention it, but it wouldn't be an extraordinary amount.

Her £151,000 winnings, were, well, astonishing. To recreate the same furor today, I would say that someone would have to win £100m, maybe more, maybe even alot more. Remember, there were no TV 'celebrities' earning £Hundreds of Thousands, for making ars*s of themselves in the media, it was a completely different world.

LongTermLurker

LucyTheDwarf wrote: »

You'd getter better tips (for free!) on this forum, in virtually every money-related topic going! Plus lively debate, friendship, and advice with any question you ever need to ask!

What a wonderful post, Lucy. Extolling the virtues of our little "family" again

nicko33

B.E.N wrote: »

Her £151,000 winnings, were, well, astonishing. To recreate the same furor today, I would say that someone would have to win £100m, maybe more, maybe even alot more.

I think I got my RPI calculation wrong.
I now think it would be £2,600,000 in todays money

I think it might have been the wasting of it that was astonishing and got the nations interest, rather than the winning of it. More had been won on the football pools several years earlier (and later)

http://community.footballpools.com/heritage/timeline
1957
Mrs Nellie McGrail of Stockport scoops the first ever £200,000 jackpot
= £3,687,000 in todays money (RPI)

1972
The first £500,000 jackpot is paid out to Mr K. Grimes of Liss, Hampshire.
= £5,150,000 in todays money (RPI)