Kevin O'Leary says families need to have $5M in the bank to 'survive' no matter what happens — here's the math behind his number and how to hit it
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Moneywise February 4, 2024 at 8:30 AM
Kevin O'Leary says families need to have $5M in the bank to 'survive' no matter what happens — here's the math behind his number and how to hit it.
Everyone has an amount they believe would be enough.
For entrepreneur Kevin O'Leary, that amount is $5 million. With that amount set aside, he argues "you can survive the rest of your life, no matter what happens."
Here's the math behind that number and how most millionaires got theirs.
O'Leary's magic number
In coming to his figure, O'Leary assumes a 6% to 7% return on $5 million will be enough to support a family regardless of economic conditions. This implies an annual passive income of $300,000 to $350,000.
Some analysts might say O'Leary's assumption of 6% to 7% annual return is optimistic. Many savers operate following the "4% rule".
Substituting 4% for O'Leary's 6% to 7% would yield $200,000 in passive income yearly — still a better-than-average income.
So, how do you raise that $5 million principal? Here's O'Leary's advice.
Focus on cash flow
O'Leary also recommends focusing on cash flow — that is, filling your portfolio with investments that produce actual income (e.g., dividends) instead of hoping that your holdings' market value will rise over time. This advice echoes Warren Buffett's famous quote: "The first rule of an investment is don't lose (money). And the second rule of an investment is don't forget the first rule."
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Avoid uncalculated risks
While you'll want to take risks, don't leap in without a plan. "I like to take risks," O'Leary once said. "That's how I make money. But they are calculated risks." It's crucial to understand what you're getting into. For an example here, look at investing legend Warren Buffett. He's one of the most successful investors in US history and he never invests in something he doesn't understand.
In making your own plan, you also want to ensure you understand what you're investing in. While doing your research is a great start, consider contacting a financial advisor* through WiserAdvisor to ensure you're properly informed and understand where your money is going.
WiserAdvisor's* online platform connects you to vetted financial advisors. After providing some information about yourself and your finances, WiserAdvisor matches you with two to three FINRA/SEC registered financial advisors who are best suited to help you with your financial goals.
Be selective with investments
"I've probably heard more than 10,000 pitches," the 'SharkTank' investor said. "And truth be told, most of them sucked." His advice about being vigilant and doing due diligence is critical. Don't get swept up in the fear of missing out on the next big thing — as you know, many businesses fail in their early days. Trust your gut and look into every opportunity with the same level of skepticism and interest.
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Get out of the pits...
Good advise for frugal living on a strict budget...
what , these pussies couldn’t do 6M ?
Yes, but 5 million is bare minimum IYKWIM...
Sounds like we need reparations for Reaganomics. Bidenomics has only been more of the same. Should we be surprised if Biden creates a Federal Office of Financial Planning. Biden could nominate Suze Orman as the first dirctor.
Of course, those reparations might require eliminating SALT deductions entirely, though. Too bad for O'Leary who created his pile with tax exempt grift.
Crapped Out Huh?
I guess I better go back to work for another 30 or so years
Working From "The Home"? Shady Pines...
No, from "Realistic Acres".
Nice fluff piece on one of the 1% who then tells everybody else what they need to do. Meanwhile how much of the population of the U.S. has trouble just making ends meet at the end of the month? But hey, the rich get richer. And here I thought the left was for equity.. Once again it's all talk with no action.
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Here is my simple advice. At the age of 25 have a household net income of a half million a year. Put half away at a minimum return of 7% rate of return. After 25 years you should have your 5 million.
Also don't forget the 2 % I get for giving your this foolproof plan.
"Pay Yourself First", which is the investor's mantra, means to put money into saving first before buying / spending on anything else.
Yep, have been doing that since I was 20.