Despite what some politicians may say, Mutual Funds are pretty safe investments. It is pretty easy to find Mutual Funds that have been around for 20, 30, 50 year or more and have averaged 10-12% growth since their inception.
For example, the American Funds Mutual Fund (AMRMX) has been around since 1950 and has averaged 11.45% growth in that time. The Franklin Custodian Growth Fund (FKGRX) has been around since 1948 and has averaged 9.82% growth since it’s inception and the Investment Company of America Fund (AIVSX) has been around since 1934 and has averaged 11.99% growth since it’s inception. Just think, the Investment Company of America Fund has been around for 77 years! That means it was started during The Great Depression. It survived World War II, The Korean Conflict, The Vietnam Police Action, the assassination of President Kennedy, the resignation of President Nixon, the attack on The World Trade Center and more! That is a pretty solid fund. This fund has shown growth in 63 of those 77 years which means better than 8 out of every 10 years it has growth. As I stated previously, it has average 11.99% growth in that time.
Now if we look at some pretty simple math, we can calculate whether or not it is possible to become a millionaire by investing in Mutual Funds. The average household income in the United States in 2010 was $46,326. If you invest 10% of that income into a Mutual Fund that averages just 9.65% growth, in 40 years you will have $1.163 MILLION.
Let’s look a little closer at my calculations. Working 40 years seems like a long time and it is, but if you start at age 22 and work 40 years, that means you are retiring at age 62. That’s an early retirement in the real world. This calculation also uses an average wage of $46,326 BUT there are never any raises factored in. It starts at $46,326 and 40 years later it is still $46,326. In the real world you will start with a smaller wage and hopefully finish with a higher wage. I used an average growth rate of 9.65%. I all ready quoted 3 Mutual Funds in this article that have averaged more than that including 2 that have averaged over 11% so my calculation was conservative.
I know you are wondering what would happen if you did not average $46,326 per year. Using an average wage of $25,000 per year and investing for 40 years you still would have $627,000! If you worked 43 years (age 22 to 65) you would have $1.048 MILLION!
As you can see, by investing in Mutual Funds you can become a millionaire. Even if you start later in life, you can still become wealthy or at least improve your wealth. Now that you know it is possible, what are you waiting for? Start investing!