With all the personal finance blogs available now it’s not hard to learn that an easy way to secure your finances for the rest of your life is to earn more than you spend and invest regularly in stock and bond index funds. By investing 5-10% of your income throughout your career you’ll have a good chance of being able to afford a comfortable retirement after 30-40 years. The results of this approach are a very reaonsable definition of being rich. Although many people spend a lot of time and effort trying to do better than this – for example by finding investments with higher returns – it’s difficult and often backfires.

Still, some people criticize this plan because they think it’s too slow. Although they may be impatient they can’t do much about it because you can’t simply modify the formula to get 50% annual returns and carry on as usual (unless you’re willing to bet everything on very unlikely events). In truth, this approach is one half of the only two reliable ways to get rich.

If you follow this plan it’s simple to predict what will happen. With real stock market returns of 6-7% (maybe a bit lower if you want to have a high bond allocation) and monthly investments over a long period you can calculate how much money you’re likely to end up with after some time. You can then use a safe withdrawal rate to figure out how much income you can generate from your portfolio.

Most people don’t have much control over the factors that influence the results – the rate of return, the amount invested, and the time period. If you don’t want to wait a long time, the only option is to change one of the other two factors. For reasons that are discussed endlessly in many places the rate of return won’t vary much just because you want more, which leaves the amount invested and the best way of getting rich quickly.

The plan looks very different if you invest a much larger portion of your income. You can see this in two ways – either as trying to invest 40-60% of your gross income, or planning to draw a much lower income from your portfolio than you receive at the time you’re investing (in truth both need to be done). The simple fact is that readily available investment returns only allow two possibilities. You can invest a small portion of your income and wait a long time until your porfolio can match it, or you can invest a large portion of your income and expect your portfolio to provide even less than the remaining amount (but you may not have to wait very long).

Investing the second way doesn’t work for most people because they spend a large portion of what they earn, which means they can’t invest much of it or live on a significantly lower income. To do it without living a very minimal lifestyle you also have to work aggressively to increase your income. If you can keep your expenses low while rapidly increasing your income and giving yourself more investment capital you may have a shot at living off your portfolio much sooner than most people can.

Although it’s difficult to do, this is one of the few ways to get rich that doesn’t contradict simple math as well as economics and the entire history of investment. The time you have to invest before you can live off your portfolio is determined by the amount you put in, the rate of return, and the amount you want to get out of it. To get big results you need to make big changes to one of more of those factors.

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