For many, the first 100,000 euros are an important milestone on their journey to long-term wealth accumulation. While double-digit sums are ignored on a daily basis and even three-digit sums are handled effortlessly in everyday life, four- or even five-digit sums are much less common. After all, most people receive a four-digit salary once a month. With a few years of savings experience, you can reach the 10,000 mark pretty quickly and take the next big step. A six- or even seven-figure net worth, on the other hand, hardly seems within reach and is therefore a significant goal for many.
But the number is so desirable not only because of its many digits, but also because it has almost magical powers. Its powers unfold especially when its owner is still comparatively young. Anyone who already has 100,000 euros in their securities account at the age of 30 can look much more calmly towards retirement and will be able to spend an almost carefree old age, at least from a financial point of view. With high probability one can become even millionaire and take thereby the next and for most probably also last step in the 10er row. The culprit is once again the compound interest in connection with the factor time.
No worries about the pension, potential to become a millionaire
Anyone who has invested 100,000 euros in a broadly diversified manner will see their assets grow by around 7,000 euros a year at an average return of 7%, which for many is already a tidy chunk of money and a nice extra income for retirement. After all, this is equivalent to more than 580 euros a month without taking taxes and transaction costs into account. Incidentally, such a high return is not entirely unrealistic: an MSCI World ETF has returned an average of 7.1% per year since 1970. That includes a number of stock market crises.
Over a period of 30 years, the assets thus eventually grow to almost 765,000 euros, which corresponds to a net profit of more than 660,000 euros. But anyone who has actually managed to have so much money on the high side by the time they are 30 will probably want to take their wealth-building journey even further and continue to nurture its fruits in the form of monthly savings rates. With a savings rate of just 200 euros a month, even the goal of becoming a millionaire then becomes a distant prospect. After 30 years, the 100,000 euros then become a proud 995,438.48 euros with the same return of 7% and an additional monthly savings rate of 200 euros. If you dedicate a 400-euro job to your portfolio, you will eventually reach over 1.2 million euros.
The later one reaches the goal, the more difficult it becomes: If you don’t crack the 100,000-euro mark until ten years later, you’ll only reach about 386,000 euros by the same age as above and thus only just under half of the early saver, but of course you won’t have to worry about making ends meet in retirement either. However, even with a savings rate of 500 euros, the million is a long way off. With a savings phase of only 20 years, the 100,00 euros and a monthly savings amount of 500 euros only become about 642,000 euros. One must drive clearly higher savings rates.
This is the power of compound interest, which really makes itself felt with more than 100,000 euros!
| Initial amount | Monthly savings rate | Total invested capital | Final amount after 30 years |
|---|---|---|---|
| 100.000 Euro | – | 100.000 Euro | 761.225,50 Euro |
| 100.000 Euro | 300 Euro | 208.000 Euro | 1.114.044,96 Euro |
| – | 300 Euro | 108.000 Euro | 352.819,46 Euro |
And in practice?
It is important to mention at this point that these are theoretical calculations that completely ignore external influences such as taxes and transaction fees. However, the story is intended to motivate and invite people to play around with this thought experiment. What does it look like with a more conservative calculation and a lower return? What impact do taxes have? I recommend here once more the fund calculator of Zins-berechnen.de.
Did I set myself this goal? Yes, of course! Did I reach it? Almost. However, I also only started to seriously take care of my old-age provision at the age of 26 and I know that I don’t need to worry too much about my pension – especially if I continue to do what I have been doing in recent years. The goal of making my first million is also still realistic. Whether I will pursue that, I don’t know. But I do know that because of the goal of being in six figures by the time I’m 30, I’ve achieved a lot more than if I hadn’t set it. I’ve stepped on the gas significantly more and continually chipped away at my savings rate.
As a student, 100,000 euros is impossible! Well, maybe it is. But maybe not.
When I look at what I’ve managed to do in five years of serious wealth accumulation (and I’m far from being a top earner), I have to say: it’s doable. I only had five years; others might have twelve if they set this goal right at 18. You don’t have to move into your first apartment right away or spend hundreds of euros at the club on weekends and buy a new top-of-the-line smartphone every year. At night and on weekends, the gas station beckons with a mini-job. We have already reported on a few savings tricks in this blog. If you dig deep, you will always discover savings potential.
Yes, it won’t be easy, but after that it will be even easier! Just try the challenge, you can only win!
Keyfacts:
- 100.000 Euro is already a decent buffer for your pension
- from this amount on there are high, absolute increases
- the earlier you start, the easier it will be
- if you have 100.000 Euro at the age of 30, you can become a millionaire
- it is a hard, but worthwhile goal
- just give it a try!
