How to Become a Millionaire!!! | The Investors Edge

By John Stewart, chief investment officer at Farmers Trust Co.

Week in Review: Inflation Begins To Tick Higher Again

Well, after many months of cheering the disinflation that has been occurring, which as I’ve explained many times is simply that prices are still rising, just not as fast as they were before.

We’ve now seen some recent data that suggests inflationary pressures could in fact be reaccelerating.

We’ve seen oil prices rise roughly 15% in the past 3 months, and over the past week, both headline and so-called “core” inflation, which strips out energy costs like oil, have come in above expectations both for consumers as well as producers.

Not only has the 10-year treasury interest rate risen roughly half of one percent since the beginning of the year, but the interest rate cuts that investors have been hoping for seem to be evaporating in front of our eyes.

For now, the stock market seems to be taking all this information in stride. Nevertheless, we’ve finally started to see some cracks in the large cap growth trade led mostly by the biggest U.S. technology companies. The NASDAQ is only up about 1% over the past month versus much stronger rates of return on former laggards like value stocks, small caps, and international equities.

Featured Insight: How to Become a Millionaire

According to a national study on millionaires, most of them are self-made. Just 21% of millionaires inherited a meaningful amount of money. So how did the other 79% do it? Well, some of them became professional athletes. But the vast majority knew the power of compound interest.

When you have savings you earn interest, and then you earn interest on that interest. That’s compounding. The same concept applies to investments like stocks. 

At a modest 5% rate of return, if you could save $656 per month starting at age 25, you would have $1 million at age 65. If you’re willing to accept more fluctuation in the value of your assets by investing in the stock market, you’ve historically earned 8 to 9% per year. At an 8% rate of return, you would only need to save $287 per month from age 25 to 65. Cut out a few trips to Starbucks and you’re well on your way to hitting that goal.  

Let’s say you’re staring a little late, and you can’t go back to age 25. A bit over $1,000/month will get you to the million dollar mark by age 65 if you’re starting from zero at age 40 and you can manage a compounded rate of return of 8%. Consistency and discipline are key. This doesn’t work if you can’t stick with it.

Looking Ahead: Fed in a Box

There’s another Fed meeting coming up next week, and our monetary overlords know they’re in a box.

What I mean by that is that they know they need to keep the markets thinking that they’re going to cut rates this year without risking a further escalation in inflationary pressures.

As the rate of inflation was moderating, it was easy for the Fed to give the markets hope regarding rate cuts. Now that inflation appears to be proving a bit more sticky than anticipated, that’s become a tougher sell.

On the other hand, the Fed can’t risk destabilizing the markets and economy by telling the markets they were just kidding about rate cuts. Let’s see if they can thread the needle. I wish them luck.

Copyright 2024 The Business Journal, Youngstown, Ohio.