Increase Your Investment Value 4X Faster Than Your 401k or IRA
Have you ever wondered how wealthy people build their wealth? In this article, I'll pull back the curtain and show you a simple way to increase your investment value 4x faster than your 401k or IRA.
Imagine retiring with three to four times more than what your current plan has laid out for you. What would your life be like if you could retire five or ten years earlier using this simple tool to your advantage?
Are you in your forties or fifties and wondering how you're ever going to save your way to a comfortable retirement since you didn't start when you were 20? Are you thinking you'll be working until you drop? Well, friends, you don't have to worry! There is a way that is not being talked about much.
Your HR department and employer aren't discussing it. Your stock broker isn't discussing it. Your 401k administrator isn't discussing this with you. More than likely they are all saying the same thing. Dollar cost average a small portion of each paycheck to your accounts automatically and with a few hundred dollars at a time you can become a millionaire after 30 years of investing.
It's been said that compound interest is the 7th wonder of the world. That may be true. The question is how things are being compounded and at what cost.
Let's start with a quick understanding of the multiplying power of compound interest by understanding the Law of 72. The Law of 72 is a simple formulaic way to calculate how long it will take to double your initial investment should all things remain constant.
Example: The average 401k in 2022 is earning 5 - 8% annually. Let's assume 6.5% is your average annual return for this illustration. Take 72 / 6.5 = 11 years to double your initial investment. Over 33 years an initial investment of $100,000 will become approximately $800,000 (simple math) or doubling three times. Start at age 30 with $100,000. By age 41 you've doubled to $200,000. By age 52 you've doubled again to $400,000. And by age 63 you've doubled again to $800,000. At age 63, you can now collect your social security and start making annual distributions to supplement your income.
That's all great in theory and we don't live in a vacuum. Economies change, politics change, recessions, inflation, taxes, and SEC regulations all have an impact on our investment portfolios. Is it safe to assume that you will have 6.5% growth annually? What happens in those down years when the market loses 5-10% (or more) of its value? Those down years can have quite an impact on your portfolio value when left only in stocks.
That's where alternative investments like art, businesses, real estate, and even those little baseball cards, can really make a difference to your bottom line. I'm not an expert in all those different strategies, however, we do specialize in real estate investments for our portfolio. Why? Because real estate provides the most basic of human needs in the form of shelter. Everyone needs a place to call home and we all pay for it. In particular, we invest in multifamily apartments.
Here's another example of the Law of 72 at work. Our multifamily assets typically kick off a 16+% average return. In many cases, the returns can be higher and in some cases, they come in a few points lower. On average our portfolio earns 16% annually. Let's do some math.
Example: 72 / 16 = 4.5 years to double our investment. Let's assume you start later at age 40 and for simple math, I'll round up to 5 years for the doubling effect creating 4 doubling periods. $100,000 invested at age 40 = $200,000 at age 45, $400,000 at age 50, $800,000 at age 55, $1,600,000 at age 60 and lets just say you keep it going to age 65. Now your portfolio is sitting at $3,200,000 by age 65 through passive investing in multifamily real estate. Just remember that we added 6 months to our doubling timeline, so in effect, you should reach your goal in 23 years rather than 25.
Wow! That's a 4x multiple over your original 33-year investment strategy in your 401k! Imagine what would happen when you can start with $200k or $300k that you have already set aside. Imagine what can happen if the returns average 18 or 19% and your investments double in 4 or fewer years!!!
What will this kind of increase to your bottom line do for your retirement years? Can you move up your retirement date? Will you travel more? Will you spend more time with the grandkids? Will you RV across the country while you're young enough to enjoy it? There's more to life than work. Don't you want to work to live rather than live to work?
In our examples, we didn't account for the tax benefits and deductions offered by the IRS for investing in real estate. In some cases (check with your CPA or tax preparer), losses through depreciation on real estate may reduce your overall tax burden on earned income.
In How to Invest in Real Estate In Your IRA, we've provided great tips on how to set up your own self-directed IRA that allows you to utilize the tax-free or tax-deferred status of your IRA to invest in real estate and many other types of alternative investments not offered by the banks and brokerages out there.
Here at Groundswell Assets, we partner with some of the greatest investors in our portfolio. We are always excited to hear stories of how multifamily investing has changed people’s lives. It is imperative that our investment partners are aligned with our core values, as we expect to create a lot of opportunities in the coming years.
Please keep in mind that there are many nuances to real estate investing, and it is always advised to consult with your tax preparer and real estate attorney to help you with these decisions. Our portfolio offerings are regulated by the SEC under REG D 501(b) or 501(c), and each offering has its own private placement memorandum outlining expectations. This article is not a solicitation for any investments.