How to Build a $1 MILLION Portfolio from $0

Would you like to become a millionaire? Would you like to build a seven-figure stock portfolio from scratch? From $0?

Want to have the independence and flexibility that a million dollars offers, but you don’t have much to start with?

While a million dollars doesn’t go as far as it used to, it’s still a lot of money.

When you think of a “millionaire”, glamorous images might enter your head.

Well, that’s probably detached from reality. In truth, a lot of first-generation millionaires have relatively ordinary lifestyles.

If you read the book, The Millionaire Next Door by Thomas Stanley, which is a prolific compilation of research into real-life millionaires, you’ll find that a lot of people with a seven-figure net worth live in modest homes and drive regular cars.

That’s because these people worked hard to accumulate their wealth and options, and they don’t want to squander it.

They’ve developed certain habits around frugality, saving, investing, and valuing time over money. These habits don’t just disappear.

Likewise, the information I’m going to provide to you today is going to concentrate on the fundamentals you need to know in order to build a massive amount of wealth from scratch.

Keep in mind, this information is coming from a guy who went from growing up on welfare in Detroit to achieving financial independence at only 33 years old. I did that without a college degree or a high-paying job.

I started from below $0. And I’m now well into the six figures and on my way to seven figures – while still in my 30s.

My stock portfolio currently generates enough passive dividend income for me to live off of, and it’s only growing from here.

I’m going to share with you a few secrets that can help you go from $0 to $1 million.

Secret #1: Be a Great Saver

I want to share my first secret with you. It’s first up because it’s the biggest and most important.

The first secret is that building a seven-figure stock portfolio will require you to be more than a great investor.

Yes. That is correct.

You need to be a great saver more than anything else.

That old saying, “You need money to make money” rings true. It all starts with capital.

Then you invest that capital.

In my view, stocks are the best long-term asset class for the average person to use.

Stocks will likely do well for you over the long run. The long-term annual rate of return on the stock market is about 10% per year. That’s before factoring in inflation.

10%/year is fantastic. This exceeds most other asset classes out there. But it’s not going to make you rich tomorrow.

By investing in stocks, you’ll be taking advantage of the second secret.

That secret is: compounding.

Secret #2: Let Your Money Compound

This is what happens when you earn interest on top of interest. It’s where old money creates new money.

Money has this ability to, essentially, duplicate itself. More money, more duplicating. Money works 24/7. It doesn’t get hungry or tired. It simply works harder and smarter than any human being, and you want your money compounding for you.

But in order to build your compounding snowball, you need snowflakes. Compounding $0 at 10% per year is still $0. Multiplying  by zero results in a zero.

That’s where savings – your capital – comes in. The more money you can compound at 10% or so per year, the more wealth you’ll eventually have.

So it’s imperative that you save your money. Then it’s vital that you compound that savings.

If you’re young and starting out with $0, fear not. You can build a seven-figure portfolio.

And as I’ll show you, it’s not that difficult, nor will it take you the rest of your life.

I’m going to assume you’re 25 years old, making $50,000 per year, and starting out with $0.

Maybe you’re in a better position. Or a worse position. But these are not unreasonable assumptions. And I think a lot of people in their mid-20s can make $50k/year in America. It’s not that hard if you’re motivated.

You then want to put yourself in a position to save 50% of that income. If you can save half of your money, you’re setting yourself up for huge financial success in life.

That’s the third secret: frugality.

Secret #3: Be Frugal

As I noted earlier, most self-made millionaires are frugal by nature. They understand the value of a buck, and they don’t spend their money lightly.

Plus, it’s easy to be frugal when you begin to realize the true power of money, which is in its ability to offer freedom.

At $50,000 per year in income, saving 50%, you’re investing about $2,000 a month.

But where do you invest this money?

Well, you can approach that a lot of ways when talking about stocks.

You can invest it in a simple, low-cost S&P 500 fund, which isn’t a bad way to go at all.

Personally, I invest my money into high-quality dividend growth stocks.

That’s the fourth secret: dividend growth investing.

Secret #4: Invest in Dividend Growers

I’ve used this investment strategy to achieve financial freedom at such a young age.

This is a strategy that advocates buying and holding stock in world-class enterprises that pay reliable and rising cash dividends.

It’s basically like the golden geese that lay golden eggs.

Imagine having a gaggle of golden geese that lay ever-more golden eggs. You don’t harm the golden geese, and you lay claim to an ever-larger pile of golden eggs. Keep the geese fat and happy, and live only off of the bountiful eggs they’re laying.

Well, the geese are dividend growth stocks. And the golden eggs are the growing dividends these stocks are paying.

If you build a portfolio of high-quality dividend growth stocks that are paying growing dividends, you can one day live ONLY off of the dividends – while keeping the stocks intact.

On the other hand, a lot of people who use index funds eventually have to start selling off shares in the funds in order to generate enough income to live off of, which is akin to slowly slaughtering the gaggle of geese.

The difference is that many high-quality dividend growth stocks are offering much more generous yields than what you’ll get with the S&P 500.

While the S&P 500 has a yield of approximately 2% right now, many high-quality dividend growth stocks out there offer yields between 3% and 5%. That’s a lot more income.

And since we know that the majority of the total return from the stock market over the long run comes from reinvested dividends, it shouldn’t be a surprise that a lot of high-quality dividend growth stocks with their higher yields to reinvest outperform the broader market over the long run.

High-quality dividend growth stocks include the likes of Johnson & Johnson (JNJ), AT&T (T), and PepsiCo, Inc. (PEP).

But for the sake of argument, let’s say you’re simply matching the market’s annual rate of return. That’s 10%. Compounding $2,000 per month at 10% per year for just 17 years results in $1.07 million.

That’s starting from $0. And that’s assuming  pay raises or increases in savings and investment. Just a straight $2,000 per month.

This person who started at 25 years old — with $0 — is a millionaire at only 42 years old.

And this is with them getting market-like returns. No outperformance at all. It’s really incredible.

But the key behind this plan is less about investing and more about choices related to lifestyle, frugality, and savings. These lifestyle choices need to be set up with the rest of your life in mind.

You have to THINK and LIVE like a millionaire in Stanley’s book.

Actually BE a millionaire instead of LOOKING like one.   

Compare this result to someone who’s only putting away $500 per month, which would still be a huge feat for a lot of Americans who prefer to spend their money.

That $500/month compounded at 10% annually over the same 17-year time frame results in only $267,600. 

That’s way off of the seven figures cited above.

And let’s not forget about the role of compounding here. If we save and invest $2,000 per month and put it in a certificate of deposit earning 1.5%, you end up with just under $464,000 over this 17-year period.

That’s less than half, because the money wasn’t compounding. It wasn’t working for you. Instead, you’re relying almost ONLY on savings.

Combining savings WITH compounding is what gets you to that seven-figure mark.

By the way, this 42-year-old’s $1 million+ portfolio is now generating approximately $40,000 per year in dividends, if they’re invested in a portfolio of dividend growth stocks yielding 4%.

$40,000/year isn’t a life of glamour.

But it is enough money to live a functional life for one person in the United States, especially after factoring in the tax-advantaged nature of dividends. This could be $40,000/year , which is a nice sum of income. It’s certainly enough for most people to be financially independent.

Meanwhile, those golden geese are  laying ever-more golden eggs. If this snowball is compounding at 10% annually, it should double roughly every seven years.

 

So before this person turns 50, they could be looking at a $2 million portfolio spitting out $80,000 in annual dividend income!

This is why you need to take frugality, saving, investing, and compounding seriously. And you need to do so as soon as possible. The earlier in life you can start, the more powerful compounding will become, and the faster you’ll see impressive results.

-Jason Fieber