How 'regular Joes' hit the $1 million mark
Financial analyst Charles Carlson may be the financial guru to small investors. But not all of Mr. Carlson's clients are still modest investors. Many can now be found in the ranks of the millionaire's club.
Millionaires, in fact, are the subjects of Carlson's latest book, "Eight Steps to Seven Figures" (Currency/Doubleday).
Simply put, Mr. Carlson wants to help you get rich - or at least get to $1 million. Through his books, newsletters, and the mutual fund that he co-manages (the no-load Strong Dow-30 Value Fund), Carlson urges small savers and investors to kick in as much money as they can to the stock market on a regular basis.
Carlson dislikes day-trading. Genuine wealth, he believes, is acquired over time.
Stock-market specialists might find Carlson's book somewhat simplistic. Still, it has much to say for both novice and long-term investors. Best of all, it is exuberantly readable - no small accomplishment for a personal-finance tome.
The eight investment rules that Carlson recommends to reach the mighty million mark are:
1. Start investing now.
2. Establish a goal.
3. Buy only stocks and stock mutual funds.
4. In baseball parlance, swing for singles, not home runs.
5. Invest monthly.
6. Buy and hold.
7. Take full advantage of government-sponsored investment instruments, such as tax-deferred 401(k) accounts and individual retirement accounts (IRAs).
8. Limit shocks to one's finances, such as divorces, frequent job changes, or having too many mouths to feed.
In two earlier books, "Buying Stocks Without a Broker" and "No-Load Stocks," Carlson urged investors to bypass brokerage houses and instead purchase stocks with dividend-reinvestment plans, commonly called DRIPs. Investors can usually buy into a DRIP if they own one or a few shares. Carlson especially likes "direct purchase plans" - that is, DRIPs that allow you to buy your initial shares directly from the company, usually for small amounts ranging from $50 to $500.
For purposes of balance, Carlson probably should have included a somewhat longer section on discount brokers and maybe a tad less on DRIPs. Still, he does discuss the advantages of traditional and low-cost brokerage houses.
A chartered financial analyst, Carlson spoke from his office in northern Indiana:
"Eight Steps To Seven Figures" shows how individual investors have been able to amass portfolios of $1 million or more. But is there something unsavory about aspiring to achieve great wealth?
If life is focused on just accumulating wealth, that is probably not a good human endeavor. But I don't think it's bad to want to create wealth. A lot of people do good things with their money, such as bettering the lives of their families, and being able to contribute to charities.
How many people did you interview?
Nearly 200 people whose everyday investing had made them millionaires. Other books have told us who millionaires tend to be. Usually, we are told, they are self-employed or own a business. But I wanted to find out how ... typical, everyday people - some of them earning average salaries - became millionaires. I wanted to find out what rules they followed that allowed them to achieve their wealth.
Were these investors financially savvy to begin with?
I wanted to talk to "regular Joes," not professional financiers or speculators. Some 85 percent of them said they knew nothing about investing when they started. But they all became knowledgeable, long-term investors. Most of them have held their stocks for 10 years or longer. They have an average of around 44 companies in their portfolio. And many of them own mutual funds, especially index funds.
Is long-term stock-market investing really that safe? We've had periods in US history where the market dipped for sustained periods of time, such as the 1930s and the early 1970s.
I would not want to go against the percentages. The fact is that there have not been 20- or 30-year periods when stocks declined. In almost every decade in the US, stocks have moved forward, outperforming other types of financial instruments, including bonds and cash.
You prefer individual stocks over mutual funds. What are your favorites?
Intel, Pfizer, Microsoft, General Electric, Walgreen, Lucent Technologies, Nokia, Equifax.
You focus on long-term investing. But do you perhaps minimize the high costs associated with raising a family? That makes it difficult for young families to jump into the market. And what do you say to folks in their 50s or 60s, who are close to retirement but far from becoming millionaires?
I know it can be hard for young families. But I can't believe they can't find even $10 or $50 a month or more to put into long-term investing. Over time, thanks to compounding, that money will grow substantially. And older investors still have many years in which to acquire wealth. They may not get to $1 million, but they can still put together a very large portfolio.
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