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Becoming a millionaire
THE MOTLEY FOOL
Ask the Fool
Published: December 3, 2024
Q: How can I use stocks to become a millionaire before I retire? -- D.B., Las Cruces, New Mexico
A: Becoming a millionaire is possible -- if you have enough time and money. You'll need to sock away significant sums regularly for many years. And you'll need to invest effectively, such as in a low-fee S&P 500 index fund.
If you can invest $500 per month into the stock market and you earn its historical average annual return of roughly 10%, you'll be a millionaire in about 30 years. It will take about 21 years if you invest $1,250 per month. There's no guaranteed return for stocks, so if you average less than 10%, it will take longer. Still, even if you fall short of a million dollars, you can amass a lot by investing well and for a long time.
Q: How is inflation measured? -- A.F., West Palm Beach, Florida A: The Consumer Price Index (CPI) is the most widely used measure of inflation. According to the Bureau of Labor Statistics (BLS), the CPI is "a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services." (By the BLS' definition, "urban consumers" make up over 90% of the U.S. population.) The measured "basket" includes expenses such as bread, meat, milk, fruit, soda, coffee, beer, restaurant meals, rent, electricity, appliances, clothing, car maintenance, gasoline, medicine, hospital care, airfares, toys, books, haircuts and many other categories.
The index shows that if you paid for such items and services 25 years ago (in 1999) for $100, in 2024 they would cost you around $188. Some CPI variations exclude particularly volatile categories such as food and energy. Learn more at BLS.gov/cpi.
Fool's School
Shrink Your Tax Bill
Tax season is still a few months away, but if you want to shrink your tax bill, there are things you should be doing throughout the year, not just in April. Here are some tips:
-- Be organized: Save receipts for any expense you'll want to deduct or may have to prove one day, perhaps in a shoebox or folder.
-- Be thorough: When preparing your tax return, aim to be comprehensive, reporting all income and taking all deductions and credits for which you qualify. Failing to report some income might trigger an audit. Note that if you're sent a 1099 form reporting some income, the IRS gets a copy of it, too.
-- Use tax-advantaged retirement accounts: If you have earned income, you can contribute to an IRA account -- up to $7,000 for 2024, plus an extra $1,000 "catch-up" contribution for those 50 or older. Company 401(k) accounts sport fatter contribution limits -- $23,000 for 2024, plus $7,500 for those 50 and older. Traditional IRAs and 401(k)s give you an up-front tax break, shrinking your taxable income by the amount of your contribution; with Roth accounts, there's no up-front tax break, but if you follow the rules, withdrawals in the future can be tax-free.
-- Take your required minimum distributions (RMDs) on time: Traditional IRAs and 401(k)s and some other retirement accounts (though not Roth accounts) require you to take annual RMDs starting the year you turn 73. Read up on the rules, and don't be late taking your RMDs, because the penalty is hefty.
-- Get an extension if you need to: Just realize that your tax payments, as best as you can estimate them, are still due in April. The extension simply allows you to file your return later.
-- Consider filing your taxes online: It can speed up processing and can also help you identify tax breaks while minimizing math errors.
Learn more about tax topics at Fool.com/taxes.
My Smartest Investment
A Comfortably Retired Teacher
In 1971, my schoolteacher's salary had reached $10,000, and it was time to get started saving for retirement in the 403(b) tax-advantaged account available to public employees. A tax-sheltered annuity featuring a 4% rate of return was popular at the time. In 1985, I rolled it into a tax-sheltered mutual fund averaging an 8.25% rate of return. This doubled my projected portfolio value when I retired 10 years later. My retirement funds now are largely in an index fund. In my late 80s, the required minimum distribution (RMD) produced by it increases my teacher's pension by 70%. -- D.H., online
The Fool responds: You were smart to make good use of that 403(b) account. (For public and some other employees, 403(b) accounts are similar to the 401(k) accounts available to workers at many private companies.) Various kinds of annuities can serve some categories of people well, but not always. Those with decades before they retire may be best served investing long-term dollars in the stock market -- perhaps via a low-fee S&P 500 index fund.
You're in an index fund now, which can make good sense even for people in retirement. Keep your long-term money there, but move money you'll need within five or even 10 years into a less volatile investment, such as a certificate of deposit (CD).
(Do you have a smart or regrettable investment move to share with us? Email it to TMFShare@fool.com.)
Foolish Trivia
Name That Company
I trace my roots back to 2011, when I was spun off from my parent company. Today, based in Deerfield, Illinois, and with a recent market value near $11 billion, I'm a specialist in the home products, security and commercial building markets. I've been growing in part via acquisitions, and my brands now include Moen, House of Rohl, Aqualisa, Emtek, Therma-Tru, Larson, Fiberon, Master Lock, SentrySafe, Yale and August. My brands have some impressive histories: Master Lock invented the world's first laminated steel padlock in 1921, and Moen invented the world's first single-handle faucet in 1947. Who am I?
Last Week's Trivia Answer
I trace my roots back to 1927, when I was founded in Augusta, Georgia, as a hardwood lumber wholesaler. By 1938 I had five sawmills in the South, and I expanded to the West Coast in 1947. I was listed on the New York Stock Exchange in 1949, but I've since been taken private, so you can't buy stock in me. I'm a top global maker and seller of bath tissue, paper towels and napkins, tableware, paper-based packaging, cellulose and building products. My brands include Angel Soft, Brawny, Dixie, enMotion, Quilted Northern, Sparkle and Vanity Fair. Who am I? (Answer: Georgia-Pacific)
The Motley Fool Take
A Semiconductor Gem
ASML (Nasdaq: ASML), a Dutch company, is the leading maker of lithography systems, machines that use light to make semiconductors. Extreme ultraviolet (EUV) machines have become the state-of-the-art industry standard for semiconductor production, and ASML is still the only company that manufactures them. (It does have competitors that make less advanced deep ultraviolet (DUV) machines.)
EUV machines are expensive to make, and ASML has unmatched intellectual property, a long history of research and development, and key supplier and customer relationships in the industry.
ASML has built a formidable, highly profitable business, and it is on track for more than $30 billion in revenue this year. However, it does face challenges. The industry is emerging from a cyclical downturn. And in response to U.S. demands, the Dutch government has restricted ASML from exporting its most advanced systems to China, which could impact its revenue.
However, the company expects strong sales growth next year. Additionally, the foundry industry is on the verge of a construction boom. That could mean a bright future for ASML over the next five years, as it faces no current competition in EUV machines. (The Motley Fool owns shares of and recommends ASML.)
COPYRIGHT 2024 THE MOTLEY FOOL, DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION, 1130 Walnut, Kansas City, MO 64106; 816-581-7500.