Compound growth to your first million: a decade by decade plan

0:00Here's the brutal truth about wealth building that Wall Street simply doesn't want you to know. Getting your first million dollars is actually the hardest part of the entire journey. And while everyone's arguing about whether a million dollars is enough anymore, they're missing the fundamental point. You can't get to 2, 3, 4, or 5 unless you crack the code on that first million. The difference between those who build generational wealth and those who stay broke isn't luck, inheritance, or some secret investment strategy. It's understanding the mathematical reality of compound growth and having the discipline to execute on it.

0:38Today, Winston and I are going to show you the exact framework that transforms ordinary earners into millionaires and then how that first million becomes your wealth building rocket fuel to reach $5 million and beyond. My name is Felix Prehn. I used to be an investor and banker. That's Winston back there, my little adopted research golden retriever. And I've seen how the wealthy actually build and protect their fortune, and it's not what you think.

1:06I'm also the founder of the Goat Academy where we've helped over 20,000 students so far learn these principles. I'm also the co-founder of TradeVision.io where we make news and Wall Street quality data available to you. But more importantly, I come from ordinary backgrounds just like you and I understand what it's like to actually start with nothing. My mission is to democratise the wealth building strategies that were once exclusive to the ultra wealthy and make them accessible to everyday investors like you and me. Because unlike the financial talking heads who've never built real wealth, I'm going to give you the unvarnished truth about what actually works, not just what sounds good in theory.

1:48Wealth building isn't about getting lucky with that one stock or timing the market perfectly. It's about understanding that your strategy must evolve through different life stages, each with its own opportunities and challenges. We have your 20s, that's your foundation stage, your primary focus, building the right habits and systems. And maybe you're past the 20s. Well, maybe you can teach somebody who is. Your 20s are not about perfection. They're about consistency. You don't need to get everything right, but you need to get the fundamentals in place.

2:26You want to understand your investment vehicles. You want to understand what the heck a Roth IRA really is. It's basically tax-free growth. The second part to your vehicles are your 401k, and that is basically free money only up to the point where your employer matches it. Beyond the matching, this is a terrible vehicle to be in, but free money, well, we pick it up when we see it. The third part is your HSA. That is literally a 3 times tax advantage if it's available to you. It's deductible. It grows tax-free and withdrawals are also tax-free for medical expenses.

3:09You want to keep it simple. Just put some money into a broad-based index fund. I don't sell any index funds. I'm not affiliated with anything. I never take any sponsorship for any company or organisation. But something as simple as VU or VO will do the trick or any other very, very low-cost index fund. The goal here is to develop the muscle memory of consistent investing and the long-term perspective mindset you want to get into.

3:39Imagine somebody walking up a hill, right? He's down here and he's walking up. But the chap's got a yo-yo. Remember the yo-yos? It's a string with a round thing on it and it keeps going up and keeps going down. It's a fun toy of a childhood. As he does that, the yo-yo motion goes up and down and up and down. He's walking up the hill. The yo-yo goes up and down, but he's going up and up and up and up. That's exactly how the stock market works.

4:07If you look at the S&P 500, which is the index of the largest 500 profitable American businesses, well, guess what? In 2008 they dropped 37%. Sounds terrible, right? But if you zoomed out 6 years later it was positive. 10 years later it was making you 7% per year. 15 years later that 7% had increased to 10% per year.

4:34So the key is to actually stay invested particularly when the market is bad. You want to make those good habits automatic. How do you do that? The simplest way to do that is to set up an automation. You want to auto dollar cost average. What the heck does that mean? You're basically just buying the S&P 500 every single month regardless of market conditions. Because if you zoom out, every decade has usually 2 downturns. Your job is to keep buying through them.

5:09And there's a reason your early decades matter. And I appreciate a lot of you guys might be older than that, but it's still a good lesson and maybe you can teach it to your children. The decade of your 20s has more wealth building power than any other decade combined, and it's thanks to the power of compound interest. If you miss that decade, well, you have a tougher hill ahead of you. You're basically fighting an uphill battle for the rest of your life.

5:32Before we dive into the accelerator strategies, if you want to learn the actual specific system that I use to identify winning stocks that I learned from my Wall Street mentors, then I've recorded a separate video for you. It's only 15 minutes long. It's probably a lot shorter than this one. And I'll teach you just the simple 3 rules that Wall Street uses to identify those winners. You can check that out for free as usual at felixfriends.org/getfree because my wish is for you to get free, financially free, time free. Check it out. Link is the first one down below in the description.

6:06Now let me show you how this actually works out with real numbers. Meet a chap called Manny. Don't ask me why his parents called him Manny, but he's a lovely guy. He starts working when he's 25 years old and he's got a pretty decent job. He makes $50,000 per year. Not some goldplated Wall Street job, but a regular person with the right strategy.

6:34So what are his parameters? He's got that $50,000 at age 25. His salary goes up by 3% per year, which is about right. Pretty miserable, but about right. And he's saving 15%. More than most people. And what's he doing with the saving rate? He's not happy with the 15% because he understands what I'm about to teach you. So he increases that rate to 25%, 1% per year. So he basically adds 1% to his savings rate per year.

7:17What are we basing this whole thing on? Well, we're basing the whole thing on an average return of the stock market. We're basically saying 8% per year is the goal. Now, for the last 10 years, the stock market's actually done more like 12%. So 8%, again it's not a promise, but it's a relatively conservative strategy.

7:41So how does this pan out with this chap executing? Well, let's look at the decades. He starts at 25. What happens by age 30? By age 30, he's got $53,000 saved or invested. Doesn't seem like maybe that much, but here is where it gets interesting. By age 39, because he keeps doing this, how much do you think he's got? Put it down below. Looks a little better, doesn't it? $352,000. Not a millionaire yet, but watch what happens next.

8:19If Manny stopped investing completely at this age and just let his money grow, he'd be a millionaire by 53. This amount of money and you stop investing and the market keeps going up by 8% would get you to $1 million at 53 years old. That's the power of starting early. But Manny doesn't stop. He's a smart kid. He continues his savings rate through to his 40s.

8:46So he follows the strategy and what happens? Well, at age 48, Manny now has $1 million. How much is he earning? He's making $98,000 a year. He never reached a 6 figure income. Yet he has 7 figures in assets. So the first million, because he started at age 25, remember that took him 23 years. What about the second million? Guess when he gets there. How long did that take him? 7 years. Age 55, he now has $2 million.

9:27What about the third million? Age 60, he now has $3 million. I always wish these pieces of paper were larger. What about the fourth million? 3 years later, age 63, he's now got $4 million. Fifth million, age 65, he now has the fifth million.

9:47The mathematical reality is if you notice this pattern, each additional million takes less time because you have more capital working for you. This is why the first million is the hardest. But there's only one way to get through it. Invest. Let time pan out. You got to do the heavy lifting. And then all the stuff after that becomes really, really nice and easy. And that's one of the reasons not that many people are wealthy because they give up. They just say, "It's just hard. I want to go buy a Frappuccino." Not that the Frappuccino is going to make that much of a difference, but you know what I'm saying, right? They go for instant gratification and therefore they struggle later.

10:24To take you to the next level, take you to your 40s, which is where I am right now. You got the basics down from your 20s. You build some momentum up in your 30s or maybe you're just starting out. Well, the best time to plant a tree was 20 years ago. The second best time is right now today. We want to get a little bit more sophisticated here. We want to understand the 3 bucket system. It's a tax strategy. Now, I warn you, I'm not a tax adviser, so run it past yours. But we have 3 buckets.

10:52Here we have bucket number 1, we have bucket number 2, and we have bucket number 3. What do we put in the first bucket? This is your tax-freeness. And if you're an American, you got a lot of good stuff going on over there. You've got your Roth IRAs. You've got your 401k up to the employer match, not beyond. You've got your HSA. Put your highest growth potential assets in there. These accounts should hold your most aggressive investments because all growth is tax-free forever.

11:27I always see people, they put all their conservative stuff in their Roth IRA, and then they're investing in their high growth tech stock, AI, biotech, you name it, in a taxed account. You've got this all wrong. Do it the other way around. In here, you want your highest risk. I'm not saying you should take high high risks, but I'm just saying whatever is the highest risk that you invested in, it should go into that first bucket.

11:53The second bucket is your tax deferred. What is it? It's your 401k. It's your traditional IRA and it's perfect for your dividend paying stocks, maybe some of your bonds. You're deferring that tax until retirement when you might be in a lower tax bracket. We should take the 401k out of here. Sorry, I should have gone in the second bucket there, right? You will pay tax on this later. It's basically stuff that you want to access when you are retired and your income has gone down and therefore you're in a lower tax bracket.

12:29Who are you working with?

12:30I am working with nobody.

12:32Nobody? I'm retired.

12:36The third bucket is your after tax investments. What do I mean by that? This is money that you've paid tax on and you're now investing it. It's your bridge account. You want to focus on assets that have quality. You will pay tax on this that qualify for capital gains treatment. There is no age restriction on withdrawing it.

12:59There is a little thing called tax loss harvesting which basically means you turn the market volatility into a tax advantage. How does that work? Well, when an investment drops, you sell them to realise the loss and then you immediately buy a similar, can't be the same, but a similar investment to stay in the market and then you locked in that loss and that reduces your tax exposure overall. You can use losses to offset gains or deduct up to $3,000 against even ordinary income. You can also carry forward unused losses into future years, which is a really really good thing to do.

13:34How does this work in the real world? Well, let me write that out for you. When your market is doing that crash, right? You're in a crash. What are you thinking now? You're no longer thinking, oh my god, the world's going to end. Now you're thinking, I'm going to save some tax. This is brilliant, right? What do we do? We sell some stuff. We lock in tax losses which we can carry forward into the place when the market recovers and you gain again. It can save thousands in taxes annually while still being invested.

14:11Now there is something else which is a huge loophole that very few people understand. It is called the mega backdoor Roth IRA for higher earners. My friends, if you're not a higher earner yet, aim to be one. If your 401k allows it, this is pure wealth building gold. How does this work? You max out your 401k, which is about $23,000, $24,000 right now a year. You make after tax contributions up to, you got your baseline which I think is $23,500 right now, that's your limit, that's your ordinary limit, but you can make additional top-ups on that so you can add an extra $70,000 on top. That's the total limit actually.

15:05And what do you then do? You immediately convert the disastrous thing that's called a 401k, I'm not a fan of them. You immediately convert this after tax contributions into a Roth. Most people mess this up. Without the conversion, you lose tax-free growth. Right? And I'm not a tax adviser, so talk to one about it. But this strategy can add literally $40,000 annually to your tax-free bucket. You compound that over decades, it's a tremendous difference to your wealth and your retirement.

15:44Do you want a bonus tax-saving tip? This is becoming a tax channel, isn't it? Do you give to charity? I like giving to charity, mostly for the furry little beings. Most people give cash. It's a mistake. What you want to do is you want to donate stocks that have gone up a lot, like the stock that's up 100%. That one, it's called appreciated stocks.

16:07If you do that, what happens? Well, you get a full tax deduction like you would on any charitable giving and the charity gets the full value. But the real real gain here is that there are no capital gains tax consequences to it. You never pay the capital gains tax on that stock that's gone up 100%. Isn't that a nice thing? It's really, really powerful if you're charitably inclined, obviously, and you've got some stocks that have gone up a lot. Nice little tip.

16:41Right now, you might be wondering, why is this not taught in schools? Why doesn't Wall Street teach you this? Look, the financial industry makes money on complexity, on frequent trading. They want you to believe you need exotic strategies and constant management. The truth is that simplicity and consistency beat complexity every single time. Warren Buffett's famous bet proved this. The S&P 500 beat hedge funds over a 10-year period. That was his bet.

17:07The system that I was taught by my mentors, guys who've done very well, and that I now teach to my students is just 3 steps. It's very simple. You can learn it for free. Felixruns.org/getfree.

17:18Why aren't more people wealthy when it's this simple? The beginning is the hardest psychologically. You're saving, you're investing, but the numbers just don't feel big enough. And that's why most people quit or say, I'm going to do it later when I have more money. But the compound effect kicks into high gear after a little bit of time.

17:37That's the first bug in the system. It's the mindset problem. How do you overcome that? Well, I like to make a plan. I like to actually sit down and go, this is where we want to get to, this is where we will get to if we do this. There is a compound interest calculator on my website. Literally just go type into Google, Go To Academy and compound interest and you can then map out what it would look like and make it over 30 years or 40 years because you're going to be alive that long.

18:07Let's see what that looks like and it's going to give you a nice little chart. You can print that out and you want to stick that on your fridge or somewhere where you see it every day. You want to share it with everybody in your family. So everybody's on the same plan. Initially they're going to say you're crazy. But after a little while they're going to realise this is actually happening, this is actually true and then you're going to get a lot more support from the people around you as well which is very very important.

18:29That's the first part, the mindset problem. The second problem is just, I call it lifestyle inflation. As your income grows every year you want to resist the urge to just upgrade everything immediately. I'm not saying you should live a rubbish life. Life's there to be enjoyed. But there is just this temptation to always catch up with something, to upgrade the car and upgrade this and buy all this stuff that isn't necessarily going to make you any happier.

18:55Before you buy something, sleep on it. Think about it a little bit and just think, is this going to make me really happy or is this just an impulse because I'm a bit frustrated and I feel like buying something? And then the alternative you can think about, what if I put that extra money into my brokerage account? How would that impact that wealth trajectory that I'm already on? Go back to the compound interest calculator because that's going to tell you that that extra thousand would actually be worth a heck of a lot more.

19:21What the interest on that $50 comes to over 53 years.

19:26$66,345. And that's figuring conservatively at 5% interest over 53 years compounded quarterly or if you put it into a 10-year T-bill.

19:38Will you stop it?

19:39Well, he's not getting away with it. The other thing I'd say to you is the news. Stop watching it. All the recessions, all the wars, all the political shenanigans out there, it's going to make absolutely no difference to you whatsoever. If it's important, someone's going to tell you about it. Free your mind from the noise and the distraction. They want you to be distracted. They want you to feel powerless and frustrated. And that's why you go out and buy more junk you don't need so they make more money.

20:07The reality is that the millionaires out there, you look at all the data. How do they get there? They invest for 25 years and it's a time frame that's not really particularly fun. I get that. Most people think, oh, it's crypto wins or something that gets them there. That's actually very, very few people. It is boring consistent wealth building. But it doesn't have to be boring if you know what the outcome's going to be at the end and you just get richer and richer every year. It actually feels really freaking good.

20:34Another uncomfortable truth for most is that the average millionaire has never made more than $100,000 annually. Building wealth isn't sexy. It's not about finding the next GameStop or Tesla before it moons. It's about a mathematical certainty executed with discipline over a long period of time.

20:52What are your next steps? You got to do a couple of things. One, calculate your savings rate. If it's below 15%, you're failing yourself. The second part, automate your investments.

21:05Sure that as you get paid, a certain amount gets invested on that day. Remove all the emotions from the equation. The next thing is increase the savings rate. Do it every year. You want to at least be at 25. And everyone always tells you, "Oh, 15% is great." No, it's not. It's going to give you a pretty miserable retirement.

21:24Never stop investing during market downturns. That's when you are buying on sale. The difference between the wealthy and everybody else is not intelligence. This is not lack of some secret knowledge. It's the willingness to delay gratification that mathematics work in your favour.

21:39And yes, you could bring in more income. That's of course a huge benefit. Play around with a calculator and you'll see how much of a benefit that is. But that first million, it will make you free because you stay invested after that.

21:51You've seen how your money growth accelerates. And that freedom is what allows you to build more millions. Do the things you want to do. Look after your family. Contribute to the charities you care about. Just live the life you want to live.

22:04Now, if you're interested in accelerating this process by learning how to identify individual stocks that can potentially do better than the 8% here, then check out the free training at felix.org/getfree and I'll show you the specific 3 methods that I've developed from my Wall Street mentors. And if you got some value out of this, share it with somebody else who might too. I wish you great success.