Multi-Millionaire the Boring Way — Oblivious Investor

I recently encountered a social media discussion in which a financial professional made the claim that [I’m paraphrasing here], the people you know with a multi-million net worth didn’t get there just by buying mutual funds. (He was making the case the entrepreneurship is necessary.)

It made me laugh because I see households with a multi-million net worth all the time, and it’s overwhelmingly people who just followed a plan that could be roughly described as, “have job, buy mutual funds, repeat.” Given enough time, regular saving and investing turns into a lot of money.

As a thought experiment, I was curious what would have been the result if a person simply maxed out their 401(k) and/or IRA every year for the last 30 years and invested it in a boring 80% stock, 20% bond portfolio. So I did the math and, as it turns out:

• If you made the maximum 401(k) contribution every year from 1994-2023 (i.e., the last 30 years) and used an 80% stock, 20% bond allocation, your 401(k) balance would be $1,805,499 as of the beginning of 2024 (assuming no catch-up contributions or “after-tax” contributions).
• If you did the same thing with an IRA, the IRA would be worth $467,081 as of the beginning of 2024.

In other words, maxing out the retirement accounts would have gotten you to “multi-million” ($2,272,580) without needing to do anything else.

Granted, maxing out retirement accounts every year might not be an easy thing to do, depending on income level. But you can see how this sort of thing is achievable via many careers that people would consider “normal jobs” — no need to hit it big by selling a company you started.

And you can see how some households would end up with quite a bit more than that, if any of the following are true:

• They have multiple partners in the household contributing to retirement accounts,
• They’re also building some equity in a home,
• They’re able to save a bit more than the retirement account contribution limits each year,
• They work and save for more than 30 years, or
• They are already retired but their portfolio’s growth has exceeded their spending in retirement.

You don’t need to found a startup. You don’t need to earn 100% annual returns with risky investments. You do need a good income, so that you can actually save and invest regularly. You do need to put a good chunk of those invested dollars to work in the stock market (ideally via a diversified, low-cost fund). And you do need to refrain from blowing up your portfolio (e.g., by selling everything in early 2009 right after the market has fallen by 50%). And you need to give it time.

*With a 60/40 allocation instead, the respective balances would be $1,465,711 and $379,137. Also just for reference, I’m using the S&P 500 as the stand-in for stock returns and 10-year Treasury bonds as the stand-in for bond returns.