The idea is to use compound interest. As the driving force behind investing, it dictates that any interest earned should be self-earned, so a little money invested now can end up being more than a lot of money invested later. In short, if you want to be a millionaire, the earlier you invest, the better.
Kuban’s point also hits the core of the concept that many Americans miss: how to effectively build wealth. When a new Bankrate.com survey asked more than 1,000 Americans how best to invest money they won’t need for 10 years or more, the most popular answer, voted by 28 percent of respondents, was it to buy real estate. In second place came risk-free investments, such as high-interest savings accounts, at 23 percent of those surveyed.
Investing on the stock market took third place with only 17 percent of those surveyed.
But while owning a home and depositing into a high yield savings account can help you build wealth, both are not the optimal way to maximize returns in the long run, Bankrate points out.
Bankrate cites a study by the London Business School and Credit Suisse that found that from 1900 to 2011, adjusted for inflation, residential real estate had an annual return of around 1.3 percent, while stocks fared more than four times better. So while financial experts like self-made millionaire David Bach argue that a home is a critical investment, real estate is still no substitute for retirement planning.
High-yield savings accounts offer higher dividends than traditional ones – 1 percent return versus 0.01 percent – but they’re not a substitute either. “Stocks have returned an average of 8.6 percent a year over the past 10 years, including the financial crisis,” reports Bankrate.
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