Forget the get-rich-quick schemes, like the long odds of winning a state lottery or Regis Philbin's game show. Wayne H. Wagner and Al Winnikoff will make anyone a millionaire - by the time he or she is 65 and without much pain or much denial of pleasures and amenities. What a great deal, and guaranteed, too, or so they promise.
They show how in their new book "Millionaire," published by Renaissance Books, Los Angeles. Its subtitle lays out the authors' premise: "The best explanation of how an index fund can turn your lunch money into a fortune."
Their book isn't designed for defined benefit fund sponsors. It's intended for individuals, so its precepts would especially serve 401(k) participants.
Mr. Wagner, chairman of Plexus Group, Los Angeles, a stock trading evaluator, and Mr. Winnikoff, a Malibu real estate investor, also created a website, cleverly named www.lunchmoneymillionaire.com, whose links assist one in following the book's plan.
The authors plot a simple course: save regularly (but not to the pain of frugality, they stress, and risk giving up on the plan), invest in a low-fee, diversified stock index fund, namely, the Standard & Poor's 500, and never sell (at least until retiring).
Now might not seem an attractive time to invest in the stock market, with continuing unease about a turnaround. On the contrary, said Mr. Wagner in an interview, "now is a great time to buy. Look, they are having a half-price sale on American industry." In the book, the authors address that "mad desire to bail out when things look way out of line." "Resist," they implore readers.
They show how the virtue of investing small amounts regularly can build into a fortune through what Albert Einstein, whom they cite five times, called the miracle of compounding returns. One example is about a chain-smoking couple. From 1930 until 1976, when both died, the couple spent about $33,000 for cigarettes. Mr. Wagner calculated what would have happened had they invested in Philip Morris Cos. stock instead of buying cigarettes, and reinvested the dividends. Investing the average $717.39 a year spent on cigarettes for 46 years, the couple's Philip Morris stock would have appreciated to $9,736,433.03
In another example, the authors show how "free" checking at one bank, even when a customer is allowed to keep the minimum required balance invested in the bank's S&P 500 index fund, would cost $68 a month in lost opportunity costs. The reason: the difference in fees between investing through the bank's high, 0.6% fee index fund vs. a low, 0.18% fee index. (Unfortunately, they don't name the bank.)
The authors make an odd couple. Mr. Wagner was one of the first index fund investors, back in 1976. Mr. Winnikoff has never invested in index funds, although he has now set up indexed accounts for his grandchildren. Mr. Winnikoff, who made his fortune selling Malibu real estate, sold Mr. Wagner his house and is the author of three other books.
"Our goal was to create the simplest investment strategy, no matter how little people know about investing," Mr. Wagner said. Thus, indexing. As for the $1 million, he said they decided on that goal because it's simple to understand. "Consultants will ask what your risk tolerances are," Mr. Wagner said. "Well, no one is sure how to figure that out." Or they'll ask, "How much will you need to spend on arthritic cream when you are 65? Well, who knows that?"
Sponsors of 401(k) plans would do well to encourage their participants to read the book, or at least imitate its simple virtues.
