The financial independence community is quite diverse.
We all have different backgrounds, marital status (statuses? stati?), income levels, passions, and lifestyle desires.
But there’s an underlying current of aspiration inside all of us. We want the option to live more independently and with greater flexibility and freedom than the typical full-time work, schedule allows.
This is where the magical ‘million dollar portfolio’ comes in. Even though we all spend different amounts and have unique future plans, most of us could carve out a wonderful new life at this level.
Granted, we’ll likely still work in some capacity, but it’ll be more out of choice and interest, not because we have large financial obligations.
The problem is, that building a million-dollar portfolio is not easy. If it was, we’d all have one! Clearly, that’s not the case. So in this article, I’d like to flesh out exactly what it takes to get there. We’ll run through the numbers as well as the all-important personal qualities you need to achieve this goal. I’ve also got an important question for you to consider at the end.
The numbers to get to a million-dollar portfolio
Below is how long it will take to amass that million-dollar portfolio, depending on how much you invest. This assumes you’re starting from zero and earning 7% annual returns.
$500/month: 37 years. $1,000/month: 28 years. $2,000/month: 20 years. $3,500/month: 14 years. $5,000/month: 11 years. $7,500/month: 8 years.
As you can see, it takes quite a bit of input to get there in less than two decades. If those last few examples seem crazy, just remember that everyone starts small. After you’ve been on the journey for a few years, you’ll look back and be amazed at how much more you’re able to invest each month compared to the beginning. I’ve heard this countless times from people in the FI community. Of course, you may expect to earn more than 7% returns. I’ve just used that as a simple example of what I think is a reasonable expectation to have. Feel free to play around with a compound interest calculator and plug in your own guestimations.
We’ll look at a few ways to speed up your progress shortly. But first, let’s consider something even more important than the numbers: the personal qualities required to actually achieve this goal.
What it takes to build a million-dollar portfolio
Knowing everything about the numbers, taxes, investment options, and even the economy, won’t help you build a seven-figure portfolio. Your actions will.
In my opinion, here are just some of the personal traits and habits you’ll need to foster if you’re genuinely serious about amassing a million-dollar portfolio.
Perseverance
This word doesn’t get used much anymore, but its importance hasn’t diminished. To persevere means staying committed to a goal even when things aren’t going smoothly. When investing for a decade or more, you can bet things won’t go your way. In fact, given markets can have horrible downturn periods, it’s guaranteed that you’ll need perseverance to keep moving forward when your portfolio is deeply in the red. There will be periods where you want to stop investing for a while, or you may feel like giving up altogether. But if you can muster the courage to stay committed to your goal, it’ll be worth it in the end.
Long-term view
This one will be a surprise to nobody! But having a long-term view is more than just not selling. It’s knowing how to maintain a healthy perspective and remaining optimistic when things don’t look good. It means looking beyond current events, almost to the point you completely ignore what’s happening around you. Maintaining maximum sanity is done by consuming minimal news. Forecasts and expert opinions are genuinely of no use to you. They’re all short-term in nature – but your investing timeframe is decades!
Consistent effort
There’s no way around it: building a million-dollar portfolio is going to take hard work over many, many years. Embrace the difficulty. Why? Because the best things in life are difficult to achieve. That’s why they’re meaningful. Whether it’s an incredible physique or a million-dollar portfolio, most of us can’t achieve either without doing the right things over a long period of time. When you look back later – even just a few years later – you’ll be proud of the progress you’ve made. But more than that, your pride will come directly from the effort you put in to get there. Without the effort, it simply won’t mean as much. Being given a million dollars would be amazing. But 100x better is the feeling of building that portfolio yourself.
Staying focused
This means not falling for the shiny new investment fad. Maybe it’s NFTs that appear to be heading to the moon (and later implode). Or it could be crappy crypto coins that inflate like a hot air balloon and then deflate back to reality. Maybe it’s a thematic ETF which you put a bit too much money into and it turns out to be mostly driven by a good story, hype, and everyone hopping in at the same time. The reality is there’s always going to be something performing much better than your portfolio. But it takes unwavering focus and commitment to stay true to your plans. Remind yourself what you’re invested in and why. Remember, there’s no free lunch or easy way to shortcut returns – it’s an important fact of markets.
How to hit a million-dollar portfolio faster
When I had just started my FI journey, all I wanted to know was how to grow my portfolio faster. I just wanted to be free as fast as possible. So it would be silly of me to forget that many of you may feel just like that. Let’s run through a few simple ways you can speed up this progress to a million.
Grow your income
Having more money coming in the door obviously gives you a nice cash flow boost, which you can allocate towards investments. Can you work more hours in your current role? Or switch employers where there’s better pay and perhaps an opportunity for advancement?
Increase your savings
Having lower expenses is another easy way to create more surplus funds for investing. Run over all your current expenses and nail down savings across multiple categories. How can you optimise your bills while still leading a good life?
Choose better investments
It’s been well established that a large driver of fund investor returns is related to how much fees they pay – low-fee funds outperform higher-fee options. You can also typically earn better long returns by choosing funds that are more diversified (they catch all the winners), and those that have low turnover (they don’t sell often).
Consider leverage
You may be able to squeeze out some additional progress by borrowing money to increase your portfolio faster. This is definitely not for everyone. But it’s not an insanely risky thing to do either, provided you know what you’re doing. If you can earn greater returns than the interest you’re paying, then leverage can provide additional growth for the portfolio.
Now here's the important question I want you to consider.
Do you actually need a million-dollar portfolio?
Some of you might have goals much larger than this, so the question itself may seem silly. But stick with me for a moment because the underlying point applies to everyone.
Do you really need $1m to start living more in line with your desired lifestyle? Is there simply no other way to create that outcome?
This depends on the reason you want the million-dollar portfolio to begin with. The goal could be to work less, transition to a cruisy part-time role, or switch industries and do something you genuinely enjoy while accepting a large drop in pay. Maybe it’s to take lots of time off, do slow travel, and spend more time with your family. All great stuff.
But what if you only need half a million to do that? It’s very possible, depending on the situation, to cut back on work, have more free time, and get most of the benefits of a million-dollar portfolio on a smaller amount.
You can make this work in a multitude of ways: remote work. Moving to a cheaper location. Simplifying your other needs. Working a part-time job to top up your income.
While it may not seem immediately doable, it’s certainly possible to create a more freedom-focused life without a million dollars. And if you manage your money correctly and maintain a small surplus, you’ll even be able to add to your investments over time, eventually hitting that goal anyway.
Final thoughts
A million-dollar portfolio is like a glimmering golden gate on the horizon. All we want is to reach it so we can walk through and enjoy the fruits of our labour (or just bask in the glory) on the other side.
Without wanting to burst your bubble, we must remember it’s just a number. Sure, it may be a meaningful number, but it’s still a number nonetheless. Would your life be that different if you only had $900,000 instead of $1 million? Of course not. How about $800,000? Not really. This tells us that as exciting as the goal is, it's still pretty arbitrary.
The point here isn’t to depress you. It’s actually to excite you. To remind you that you can get a whole host of psychological and practical benefits from having a decent pool of assets, even if you haven’t joined the double comma club yet.
So, remember to keep this in perspective as your portfolio builds and you pass each milestone. Your personal power comes not from having X number of dollars, but from the fact that your knowledge, skillset, and actions have built savings and a portfolio of investments that will carry you through life.
Until next time, happy investing!
Dave
