I think almost everyone asks this question in their lives – “What’s the absolute easiest way to make a million dollars?” It makes sense. I mean…we all want to be millionaires…and who really wants to toil and grind all their lives vs. just being handed a million dollars? Easier is better! So what’s the answer? What’s the easiest way to make a million dollars?
Three Ways to Earn Money
Essentially, there are three ways to earn money in this world:
- Earned income
- Passive income
- Portfolio income
Earned income is where you trade time for dollars. People pay you X dollars to work for an hour. Your job may pay you $10 an hour or it may pay you $100 an hour. One is more than the other, but you still have to trade time for the money.
Passive income is where you create an asset (either with your time or by purchasing it), and then that asset pays you money for as long as there’s demand for it.
Examples of this might be:
- You buy a car wash (the classic example…but typically isn’t that great of an investment FYI), pay someone to run it, and then you earn the profits without being there.
- Writing a book, publishing it, and then earning a set royalty every time one of them sells.
- You buy a rental property, put some tenants in it, and then receive rent checks every month without even driving past the place.
Portfolio income is like passive income. You purchase paper assets (stocks) with the hopes that they’ll go up in value and/or pay dividends. Essentially, you buy them, do absolutely nothing, and earn money (or I should say, typically earn money…there’s no guarantee).
The Easiest Way to Make a Million Dollars – Earned, Passive, or Portfolio?
Of the three ways to make money, which is the easiest?
Earned income obviously takes time – it takes time to develop skills, to earn the money, and saving is typically slow as well.
Passive income is often the go-to approach by many, but it’s not as easy as it sounds! It requires a ton of work or a ton of money to even start earning an income. And, there’s no guarantee that it’s going to work either!
For the past hundred years or so, investing money into the general stock market (ie. the S&P 500 Index) has yielded between 10-11%. It’s easy to purchase (just head to Vanguard and by an S&P 500 Index (I personally like VFIAX) and making 10-11% for doing absolutely nothing is pretty dang good!
Between the three options (earned, passive, and portfolio), I’d say that portfolio investing is the easiest!
The Easiest Way to Make a Million Dollars with Portfolio Income
We established that portfolio investing is the easiest way to earn money, so now what’s the easiest way to make a million dollars via the portfolio investing method?
According to a recent Global and Mail article, Einstein once said,
“Compound interest is the eighth wonder of the world. He who understands it earns it, he who doesn’t pays it.”
It goes on to say:
“If you invest a sum of money at 10 per cent for five years, you will multiply your wealth by 1.6 times.
If you invest your capital at that rate for 10 times as long (50 years), you will not multiply your wealth by 16 times.
You will multiply it by more than 117 times.”
That means if you invested $10,000 today, 50 years later it will be worth $1,170,000!
Chances are you don’t have $10,000 on you at this moment.
Also, you probably don’t have 50 years of investment life ahead of you…
So how do you earn that million bucks?
The answer: invest as much as you can, and as consistently as you can…
- If you have 40 years to invest, put away $160 a month to reach that million.
- If you have 30 years to invest, you’ll need to put away $450 a month to reach a million.
- Got just 20 years to invest? You’ll need to invest $1,350 a month to reach that magic million dollar mark.
- And if you have just 10 years before you want to retire, you’ll need to invest $5,000 a month to get to a million!
As you can see, it’s much easier to reach a million dollars if you start earlier! So, the moral of the story is, start today if you haven’t already!
*The above figures assumed a rate of return of 10% per year…which has been the average S&P 500 Index earnings since its origination in 1926.
Easiest Way to Make a Million Dollars – Are You In?
I believe that the easiest way to make a million dollars is via portfolio income and through consistent contributions into an Index fund that models the S&P 500.
What do you think?
Between the three forms of income (earned, passive, and portfolio), is portfolio the method you’d take to earn your million? And would you choose the Index fund route? Or would you take some other avenue?
What do you think is the easiest way to make a million dollars? Tell us in the comments below!
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.