Teeka Tiwari

The Easiest Way to Make $1 Million

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Sticking with a long-term investment philosophy is one of those things that's much easier said than done. Even the very best fund managers can experience losses for 50% of their clients, often because those clients pull money from the fund manager at the worst-possible time.

Almost any investment approach will experience periods of losses otherwise known as "drawdowns."

If you believe in the long-term validity of the methods used to govern your long-term investments, then the worst thing you can do is sell into a drawdown or withdraw money from a fund manager while they are in drawdown mode.

This is especially true for fund managers who have a 15-year record of strong compound annual growth rates. Over time, those types of fund managers will invariably pull themselves out of drawdown.

The same is true for index investing: Over time, all the major indexes make higher highs.

It's true that, in many cases, several years can go by before the index in question fully recovers. But if you are investing with a long enough time horizon, then it really doesn't matter.

Make Drawdowns Work for You

One way to make drawdowns work for you is to use dollar-cost averaging.

Dollar-cost averaging simply consists of investing equal amounts of money at specific periods of time into a financial instrument (such as the S&P 500).

Dollar-cost averaging means that sometimes you'll be overpaying for the market, like many did in 2008. But you'll also be buying the market on the cheap, such as in March 2009 when the Dow fell below 7,000.

If you have absolutely no interest in investing in the market, but the idea of only getting a 1% return on your money at the bank makes you nauseous, then dollar-cost averaging may be for you.

Compound Your Returns With Dollar-Cost Averaging

The process is simple: Pick a specific series of time periods to add money to an S&P 500 index fund. It could be annually, quarterly or monthly. Just make sure that you pick an index fund that does not charge you a commission every time you buy into it, and one that also has very low management fees.

If you do that for 20 years (as well as re-investing your dividends back into the index), you'll have about an 11% compound annual growth rate (CAGR).

While that return sounds low, an 11% CAGR will have you beating more than 85% of professional fund managers!

How to Make an Easy $1 Million

If you save just $5,000 per year for 30 years at a CAGR of 11%, you'll have $1.1 million.

Many people will say, well, what's $1.1 million worth 30 years from now?

And my reply is that it's worth a darn sight more than if you have nothing in your savings account 30 years from now!

If you want to accelerate your retirement earnings, there are just two options: either invest more or generate a higher return. But if you are looking for a completely autopilot solution for beating 85% of all money managers, then this may be the approach for you.