Don't Make a Million-Dollar Mistake

In an earlier commentary, we ran the numbers and found that a 22-year-old investor with $20,000 could surpass the million-dollar mark by the time he or she reached age 62. Provided this portfolio only slightly outperformed the market's historical average and returned an annualized 11%, that growth would occur without our hypothetical investor kicking in a single additional penny.

Sure, but what if you're not 22 anymore? Not to worry: Even if you're older -- 42, say, rather than 22 -- and looking to play catch-up without that kind of money in the bank, you, too, can be a millionaire. Really.

Make a commitment
The first step is to commit to investing in the stock market systematically. Do everything you can to make it a no-brainer -- literally. After all, if you have to think each month about whether to send money to a brokerage account, chances are -- as with flossing your teeth or eating leafy green vegetables -- you'll opt to take a pass, at least on occasion.

My advice? Just don't do it.

With automatic investing, that's not even an option, which is one reason why participating in your employer's retirement plan is such a smart and Foolish move: The money comes out of your check before it hits your bank account, so you don't even have a chance to miss it.

Similarly, these days, fund companies make it as easy as pie to "dollar-cost average" into their funds. Dollar-cost averaging is just another name for automatic investing, and provided you've picked the right investment vehicle, letting your brokerage or fund company do all the work for you is the very definition of convenient.

Next step(s)
After you've made the all-important decision to invest on a regular basis, picking the right investments is the critical next step. Should you opt for growth stocks such as Texas Instruments (NYSE: TXN), Sony (NYSE: SNE), and Corning (NYSE: GLW), each of which sports juicy earnings-growth estimates and -- surprise, surprise -- S&P-besting price-to-earnings (P/E) ratios as well? Stryker (NYSE: SYK) and Research In Motion (Nasdaq: RIMM), a pair of the market's relative high-fliers, fit that bill, too.

On the other hand, maybe seemingly discounted fare such as Merrill Lynch (NYSE: MER) and ACE (NYSE: ACE) -- stocks that currently clock in with single-digit P/Es -- are more your style. Another option might be a portfolio of funds that includes a dirt-cheap index tracker like the SPDRs (SPY) exchange-traded fund and a clutch of actively managed overachievers.

As the Fool's resident fund geek, I'm a big fan of that last approach, but no matter which path you settle on, the important point is this: Get going now. A 42-year-old who starts from scratch and kicks in $500 a month (and earns the same 11% we hypothesized above) will have more than $380,000 when he or she hits 62.

And obviously, the more, the merrier: Sock away $15,500 each year in your company's 401(k) -- your contribution limit for the 2007 tax year -- and fund an IRA to the tune of four grand a year, and voila! At 11% annualized, your nest egg will grow to more than $1.2 million in 20 years.