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

O’Leary says you need to have $5M in the bank

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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 have achieved it.

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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.”

With historically high returns, the opportunity for regular income and relatively low volatility, you might want to consider investing in real estate.

Backed by world class investors like Jeff Bezos, Arrived makes it easy to fit rental properties into your investment portfolio* regardless of your income.

Arrived’s easy-to-use platform offers SEC-qualified investments such as rental homes and vacation rentals*.

Its flexible investment amounts and simplified process allows accredited and non-accredited investors to take advantage of this inflation-hedging asset class* without any extra work on your part.

Knowing the right investments to make can be daunting. Luckily, resources like Empower* can help guide you in making the right financial decisions to optimize your portfolio.

Empower is a unique digital suite of finance tools to help you stay on top of your finances, from investment strategies to budgeting and wealth management. When you sign up for Empower, you can connect with one of their financial professionals* to develop a personal strategy tailored to your financial goals.

With a streamlined focus on finances, Empower can help you make solid investment decisions* that will pay off.

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.

With Robinhood* — an automated investing app —  you can buy fractional shares of an investment so you don’t have to worry about putting all your eggs in one basket as you see how an investment develops. Plus, they don’t charge commissions to trade stocks, options, or crypto.

With features like automatic investing, in-app investing guides, and 24/7 access to their customer service team, Robinhood makes it easy to trust that your investments are in good hands*.

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.