Thursday 30 July 2015

Is the first million the hardest?

Legacy, leaving, behind, children

I got absolutely no clue at all because I am far from it and my set plan also does not concern reaching one million euro in stocks. My original plan is 750,000 € but I have come to realise that I need even less than that.

It is however interesting that so many says that the first million is the hardest to make. Where does it come from and how does that apply to me?

When I take a look at my own situation then I see two borders. The first border is to reach a yearly amount of dividend payment that is as large as my monthly savings because from this point on the snowball will roll with more than double speed.

The second border to reach is to receive more dividends than what one actually have in living expenses which then also gives the option to decide what is next in life for me? Some obviously decide to collect more money and others retire early.

Both borders are highly individual and the more extreme monthly saving the quicker the second border will be reached. The rule as well as reality says that saving 70% of your salary for seven years and you can retire with remained standard of living.

When I look at my own yearly dividend payments then I am at around 2.5% of the invested value due to for instance being shareholder in companies that pay no dividends as well as pushing in new fresh money each month. Many companies in Europe pay dividends once per year so there can be as much as twelve months from investment to first dividend payment.

Taking the one million as an example then that would give around 25,000 € in dividends per year and I guess that for many people, living a very comfortable life, then 25,000 € per year will most likely cover their expenses hence this could be part of the reason for the saying. Because after this point, with remained expenses, you will only keep gathering wealth.

If I then look at myself then happily I will not need one million. I have as a rule to invest minimum 1,000 € per month which means that my big snowball effect would start already at 480,000 € and this value I think is fairly similar for a normal investor. Lundaluppen as an example was up at this level of his portfolio and he was getting out around 16,000 € in dividends so even more than the 12,000 € that he was roughly saving each year. In my opinion most people with an ok job and without an extremely expensive lifestyle are able to push 12,000 € into stocks each year.

The second border, which is based on expenses, will be more different for each investor. Happily my expenses are even lower than 15,000 € per year which means that I will need around 600,000 € to go past the second border. By now 66,000 € was accomplished in three years and I therefore got 534,000 € to go.

For me, due to my low expenses, the biggest hurdle will be the first one and once that is accomplished then the home run have already been hit and I will need to go through a massive mental change to be able to take out money from the broker account in comparison to always pushing in money depending on what I decide to do in life.

Conclusion: It could be that the first million will be the hardest to collect for many investors but I, personally, do not care. I need 600,000 € in stocks paying out around 15,000 € in dividends each year and anything more than that would be useless to me and to the world since hoarding more money helps no one. One day I hope to go back to this article, or to be reminded from readers regarding this article, to remind myself how I thought today and to hopefully then also be able to influence how I think in the future. Maybe one then wants to leave a legacy behind for the children or have decided to start a foundation or anything else which could be the reason to keep increasing the wealth. Maybe one is happy with how ones life is going with a interesting job, with nice colleagues and have absolutely no interest to retire or waste money on stupid stuff so hoarding is the only option left... who knows...

Which are your two borders? Are you already past them? Are you now working on your legacy?


Amin said...

Thank you for your article but for me, 15000€ per year is not enough, it means your are paid 1000€ per year. Ok you don't have to work but with 600000€ you can do better than investing in companies that gives you this amount of dividends. You can for exemple invest in a good business like a restaurant (can bring you 3000€ per month) or in biotech companies like DBV technologies and multiply your invest by maybe ... 10? 600000x10 = 6 millions euros. You have enough to buy an amazing house in Germany, an very good car and enough to live very very well for the rest of your life. What do you think?


Fredrik von Oberhausen said...

Hi Amin,

6 million € is a lot. I am sure that if you would sit down and calculate for yourself you would find that you can get away with much, much less than that.

I came to realise after listening to stories of problematic rental guests, as well as from running my own company that the absolutely easiest approach is to own parts of companies with honest managers that does all the hard work for you.
Because then you do not have to argue with employees, or make sure they get their salaries each month and you do not have the trouble of getting a horrible rental guest out of your apartment etc.
The managers in the companies have to deal with all of those things and yes, they get a salary to do so but for me it is worth it. My biggest time consumption right now is to read a quarter report in the companies I own and that is it.

I looked at your Biotech company. They made in 2014 the full 0.2 million in revenue from sale of product and booked 24 million as loss. Why would I want to buy that? Why would anyone want to buy that?

I simply do not have any materialistic demands concerning an exclusive house or exclusive car. Cars are the worst money burner you can find and one should be very careful before deciding to buy one. the car I have I will drive until it dies and my wife and I are happy with two rooms and finding a house with two rooms will become trouble some.

Hampus said...

I think that you need to have some margin of safety when calculating with 600 000€. If a new financial crisis occur, some of your stocks might cut their dividends in half. Dividends are not as sacred to European firms as they are to American's. If your 15000€ get cut in half, and the world is in a financial crisis, you probably will have a hard time finding a job after being unemployed/retired for some time. A million euros would be more sufficient in my opinion.

Fredrik von Oberhausen said...

Hi Hampus,

I fully agree with you that the American dividend aristocrats will be very reluctant to cut dividends and the European companies are often jumping back and forth based on the current mood of the managers.

Yeah, the quantity of the stock portfolio should maybe be higher and maybe one should even have one or two years of living expenses in cash just in case of...

Personally I still think I will find it very hard to stop working especially if I love my work and my colleagues. I think the best solution would be to step down to half-time or something like that try to get the best of both worlds.

Falk said...

Hi Fredrik,

thank you for your interesting article. I totally agree with Charlie Munger: "The first $100,000 is a b*tch, but you gotta do it." (

Interestingly, 600.000,00 euro in stocks is also my personal number. But I am satisfied without a fancy live style and can therefore save money every month, too. So its only a matter of time.

I like my job and I would probably work there even as an early retiree, even if I could get caught by the "internet retirement police" ( :)


Fredrik von Oberhausen said...

Hi Falk,

grrrr... my neighbour have moved out of their house so I had no internet for a couple of days. Drove me crazy! So sorry for my late reply.
My kind Dad gave me his mobile internet so now for the rest of the vacation I am safe!

Thanks for the two great links Falk! So Munger said 20 years ago that it is enough with 100k € to get the snowball running. I see how the snowball starts to roll but that is just too darn slow for me.

Hmmm... sometimes I find that MMM gets a bit too emotional in defending his lifestyle and his MMM cult. But what he has accomplished (both building up his fortune in relation to costs and then to build up his internet MMM cult) is amazing. All honour to him!
I read almost every article he publishes besides from when he goes ranting yet again about cars. I mean his point is fully valid but to read a car article for the 20th time just assumes that I the reader is stupid and so forgetful that I would not remember the other 19 that he wrote.

600k also! Nice! If I would have liked to compete I would have started up a competition now! ;)


Falk said...

Hi Fredrik,

thanks for your response. I like MMM and especially enjoy his reader case studies. They make me think sometimes. I sold our second car this month, my wife may keep hers :) I will use my bike.

His ideas are not new, but he makes it very clear, that there is a difference between beeing frugal and beeing cheap. There are a lot of people out there with the same mindset, e.g.

I think the group of people is growing, even if I dont have any evidence for my thesis. It will be easier when interest will rise again because people especially in germany avoid stocks and prefer bonds and call money.

Still no car and using your neighbors internet connection? Your snowball will soon be an avalanche :)