How to Make a Million

Today, "The Millionaire" is long gone, but the prospects of creating a bucketful of one million dollar bills isn't as far fetched as you might think---provided you're willing to make a few sacrifices to reach that goal.

While it was much easier to accumulate wealth when interest rates were higher and equity funds had annual total returns in the double digit territory, in all honesty, the task--- in this current market environment--- takes devotion and determination.

"From 1982 to 2000, investors enjoyed significant double-digit returns, " says Harvey Hirschhorn, a market strategist for Columbia Management Group. "For stocks it was 17-18 percent gains on average per annum. On bonds, from 1982 to this year, we're enjoying a 12-13 percent compound return."

Going forward, Hirschhorn said the average annual total return numbers are going to be significantly lower. "Large-cap stocks will be more like 8 or 8.25 percent (per year); small-cap stocks could be up to 9.75 percent; and bonds around 5 to 5.5 percent per year."

Given those kinds of projected returns, I asked the Columbia Management Group to calculate how much money someone would have to invest each month to build a $1 million nest egg. Also calculated where one-time lump sum investments. All were based upon an average annual total returns varying from 4 percent to 12 percent, and examples based on investors of various ages from age 20 years to age 50. What's not included, and this is really important, are any tax consequences. So, as you read through the examples, keep in mind that taxes were NOT a part of the equation.

So, for those with million-dollar nest egg dreams, here's a look at some examples of how much you've got to invest to reach that seven-figure goal:

It's best to start young. When time and compounding are on your side, making a million isn't that tough. Using an average annual total return of 8 percent, and assuming that you're 20 years old today, you will have to invest $205 dollars a month to have $1 million by age 65. Work until age 70, your monthly payments would only need to be $136.

Move down to an average annual return of 4 percent, and that monthly payment needs to be $688 to reach the million dollar goal by age 65 and $544 a month to make it by age 70.

Middle age is expensive. "It pops out quite nicely in the charts, " says Hirschhorn. But if you wanted a million dollars at age 65, before you thought you could get 12 percent per annum and you were a 35-year old woman, all you had to do was put away $319 a month. Now, with returns at 8 percent per year, you've got to more than double that."

And he's right. At age 35, you'd need to invest $723 dollars a month to have a million by age 65 if that money is working at 8 percent per year. Or, make a one-time lump sum payment of $99,377.

Fifty and frivolous. As you'd no doubt figured, building a million-dollar nest egg when you've reached age 50 takes some doing. For those who may have sold a business or inherited a bunch of money, it would take a lump sum of $315,242 to have a million by age 65 if that money was earning an average of 8 percent per year. To have a million by age 70, earning 8 percent per year, the lump sum would have to be $214,548. Move down to a 4 percent average annual rate of return and you'd need $555,285 to have a million at age 65 and about $100,000 less to reach that dollar goad by age 70.

Break it down into monthly investments, and you'll need to put $3,111. away to have $1 million by age 65 based upon an average annual return of 8 percent. Or, $1,828, to reach that goal by age 70.

Hirschholm says for those with million dollar goals, it's best to diversify your assets, and probably more than you have in the past. Plus, make it a point each quarter to look at your asset allocation.

For a more complete look at how much it takes to make a million, click here.

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Dian Vujovich is a nationally syndicated mutual fund columnist, author of a number of books including Straight Talk About Mutual Funds (McGraw-Hill), and publisher of this web site.