Get Rich Slow

I know, we all want to get rich quick. Doing that is very tough and typically requires a huge amount of risk. Why not go the better, and less risky, route by executing a plan and allowing time to do its work for you? Roth IRAs are the best long-term investment vehicles ever offered in America. They didn't exist when I first entered the workforce. What makes them so good? You don't get any tax savings from putting money into them. The benefits accrue, though, over the rest of your life. All four methods of growing wealth are fully exempt from taxation, while working their magic within Roth accounts. Later on, all withdrawals are likewise exempt from federal taxation as well. That's a huge advantage over traditional IRAs, 401(k)s and Keogh Plans, which offer initial tax breaks but can impose huge costs when you finally get around to taking mandatory withdrawals. Not only that, gains that would have qualified for long-term tax treatment don't get that when made within sheltered plans. Qualified dividends, which have been taxed at favorable rates in recent years, don't get those breaks either when collected within pre-tax retirement plans. The IRS is thus your partner in all gains garnered in pre-tax plans making them much less attractive for those who successfully invested over their working lives. Tax rates are almost certain to go higher in future years. That makes Roth IRAs or Roth 401(k) plans clearly superior choices. Knowing that, here are some real life examples of how anyone with $6,000 per year available can plan on becoming a millionaire by retirement age. These assume a $6,000 initial deposit (at a starting age of 30) plus annual $6,000 contributions each subsequent year through age 65. That's 36 years of $6,000 IRA deposits that total $216,000 in after-tax total contributions over your working lifetime. The glaring thing that should catch your attention is that choosing fixed income investments like treasury bonds, bank CDs or money market accounts is the worst possible way to go. The rate of 1.7% compounded, similar to the current yield on 10-year treasury bonds, wouldn't quite turn your $216,000 into $300,000. Adjust for inflation and you'd have a horribly puny nest egg when you need it most. Ratchet your returns up to 6% annualized and your Roth account will be worth almost $763,000. Hit 8%, 10% or 12% and you'll be a guaranteed millionaire, or even multi-millionaire. Returns like that are not far fetched. There are three separate ways to goose your returns once you're willing to own individual stocks. Most people fail to include covered call sales in their IRA plans. That's too bad as call writing accomplished a few very positive things if done intelligently. Unlike capped maximum contribution rates, covered call income is not limited to any particular yearly amount. Income from that source simply accrues to your IRA or 401(k) and can be immediately used to buy more stock. That contributes to a compounding effect above and beyond your own deposits. Selling calls also reduces risk. Premiums received buffer you against the same amount of declines in the underlying shares when some of your holdings temporarily dip in value. That makes it easier to ride out inevitable, but temporary, market setbacks. Always remember... every bear market in American history has eventually been just a prelude to another all-time high. How important can covered call writing really be? Here are the actual numbers from two of my personal IRA accounts during the first quarter of 2021. The dollars shown were net of fees and do not include appreciation or dividends on the underlying shares. Any money spent on option close-outs and/or roll outs has already been figured into the totals. January totals are typically higher than all other months due to the prevalence of LEAP options expiring. The projected 17.32% annualized rate is thus likely to be a bit higher than what I can expect to see at year-end. Even 50% to 60% of that figure, though, would make for a huge addition to my total return. Indisputably, strangers put more than $86,000 into my IRAs between Jan. 1, 2021 and Mar. 31, 2021. That money went into bumping up my existing equity holdings. The more shares you own, the more calls you can sell. That is part of the snowball effect often mentioned concerning compound interest. I turned 30 in 1980. Maximum IRA contributions back then were just $2,000 per year. Roth IRAs had not been invented yet. I was prohibited from contributing at all until later as I was then an officer in the Air Force and considered covered by a retirement plan. The rules were relaxed later, which let me get started with a traditional IRA in 1982. What is the bottom line here? There's no reason anybody with a decent job and fiscal discipline can't become at least a millionaire over their lifetime. Deferred gratification, willingness to accept volatility of returns and systematic saving is all that is required. Stop trading and start investing. Getting rich quick is a pipe dream that few can attain. Becoming wealthy over time is a virtual certainty if executed with a sound plan. What about me? I own no bonds, CDs or money market funds in my long-term retirement accounts. I typically remain 100% invested in individual equities within those accounts.

Get Rich Slow

Get-rich quick schemes offer little more than pipe dreams. Here's the way to become wealthy over time.

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