Oct 28, 2024
University of California, Berkeley sophomore Daniel Villasenor kicked a Hail Mary through the uprights and won $100,000.
Participating in ESPN’s College GameDay field goal challenge, he missed his first attempt but made a successful 33-yard kick on his second try in worn-out checkered Vans shoes that he joked were “100 years old”.
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The 19-year-old civil engineering student didn’t say what he would use the payout for, but financial experts would suggest $100,000 is the toughest first step on the way to financial freedom. Here’s why.
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Critical milestone
Charlie Munger, the late billionaire investor, Berkshire Hathaway's former vice-chairman and Warren Buffett's longtime business partner, once said that breaching the six-figure barrier was a critical milestone for anyone looking to build wealth.
“It’s a b—, but you gotta do it,” he said during an annual meeting with Berkshire Hathaway shareholders. “I don’t care what you have to do — if it means walking everywhere and not eating anything that wasn’t purchased with a coupon; find a way to get your hands on $100,000.”
The reason this milestone is important is the same reason investors like Munger and Buffett are wealthy: compound interest. Put simply, your money grows faster when you already have money to deploy.
For example, Mia has spotted an investment opportunity that delivers 7% annual growth. She deploys $10,000 a year into this investment and wants to reach $1 million in net assets as soon as she can. It would take her nearly eight years to reach $100,000 in accumulated assets, but only five years to reach $200,000, and only four years to reach $300,000.
The leap between every $100,000 gets shorter after the first one. Consequently, it would take Mia a total of 31 years to go from $0 to $1 million, but 26% of that time would have been spent accumulating the first $100,000 alone.
This is why Villasenor’s field goal puts him on an accelerated path. With the first and toughest hurdle out of the way, he can invest $10,000 every year in the same opportunity as Mia but it would take only 23 years for him to get to millionaire status.
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Like him, if you’ve managed to accumulate your first six-figure nest egg, here’s how you can invest it wisely.
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What to do with your first $100K
After you’ve crossed the first milestone, you can probably aim for safer investments. A diversified portfolio in a tax-shielded account such as the IRA or 401(k) plan could be a pragmatic approach.
Passively investing in a broad, low-cost index fund could be another pragmatic move. Vanguard’s S&P 500 Index fund, for example, has delivered a compounded annual growth rate of 15.93% over the past five years and 13.33% over the past ten years.
With an eye on risk and disciplined investments, you could turn your first breakthrough $100,000 into a sizable financial safety net within just a few years.
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Vishesh Raisinghani is a financial journalist covering personal finance, investing and the global economy. He's also the founder of Sharpe Ascension Inc., a content marketing agency focused on investment firms. His work has appeared in Moneywise, Yahoo Finance!, Motley Fool, Seeking Alpha, Mergers & Acquisitions Magazine and Piggybank.
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