How to Amass the First $100,000 of Your Portfolio

No statement better sums up the emotional and practical struggles that average people face when trying to build a better life for themselves and their families. It is attributed to a very successful investor, Charlie Munger, the vice chairman of Berkshire Hathaway and one of the wealthiest people in the world, with a fortune of about $2.2 billion as of November 2021. He is said to have quipped about starting out in the investing world: “The first $100,000 is a bitch.”

There are many reasons why Munger's lament is true. One is the federal tax code. It requires a significant chunk of working people's income—particularly those who are self-employed—to go to the government. Another is the level of debt that many people face.

Yet another problem is lack of knowledge when you're just starting out. Imagine the hours, effort, and heartache you could save yourself if you could go back in time and pass on your wisdom about money—and life in general—to your teenage self.

This article offers some tips on how to put aside your first $100,000 in investment capital, free and clear. For further advice, you can always consider consulting a financial planner.

Know the Tax Code

Cash in an envelope
Saving money and investing money are not the same thing. Saving money refers to building cash or liquidity reserves that can be accessed on short notice. Investing money is the process of putting on capital today, possibly tying it up for extended periods of time, for the primary purpose of generating capital gains, dividends, rents, or other sources of investment income. Image Credit: Peter Dazeley / Getty Images

You don't have to be a tax expert to start investing, but you should know how much of your income will go to the government.

Income of $147,000 or less is subject to a 6.2% payroll tax for Social Security in 2022; the threshold increases to $160,200 in 2023. Income of all levels is subject to a 1.45% payroll tax for Medicare. For each worker on the payroll, employers pay another 6.2% for Social Security and 1.45% for Medicare. And those who are self-employed must cover the 15.3% ([6.2% x 2] + [1.45% x 2]) total tax on their own.

The good news is that half of your payroll taxes are deductible from your income taxes. However, the net effect is that many Americans still pay far more than their stated income tax bracket would have them believe.


As you earn more, the tax burden as a percentage of disposable income begins to decrease. That's despite it being higher in absolute dollars.

In other words, if you make $800,000 and pay $350,000 in taxes, you will feel a big bite, but your standard of living will still be high. If you make $20,000 and pay $2,800 in taxes, your standard of living and ability to save will be greatly affected.

The Internal Revenue Code allows you to invest pre-tax or tax-deductible money into a traditional IRA or 401(k) plan every year to save for your retirement. For example, if you contribute $5,000 to a 401(k) and are in the 24% bracket, you won’t have to pay $1,200 in federal income taxes on that money because, for now at least, the government acts as though it never existed. If you were to use that same amount of money—only after taxes this time—to pay bills, you would have, at most, only 76 cents on the dollar.

Go After Free Money

If your employer offers 401(k) matching, take advantage of it. If you were to get dollar-for-dollar matching on your contributions amounting to, say, 5% of your earnings, with an income of $30,000 per year, you would get $1,500 in a bonus match added to your account.

In the example, you got $1,500 from your employer, invested $5,000, and saved $1,250 in taxes on that investment. So by putting $5,000 in your 401(k), you have a total of $6,500 of capital working for you. That's $2,750 more than you would have had if you had taken $5,000 from your paycheck, paid taxes on it, and put the money in a brokerage account.

Create Income Just for Investments

One way to save more money is to grow your income. If you have a talent or skill, maybe you could freelance on the side to pick up another couple hundred dollars per month. If you make an hourly wage, perhaps you could put in some overtime. You could invest your additional earnings in, say, blue-chip stocks and buy sizable positions over several years. With dollar-cost averaging, you could lower the average price that you pay per share when compared with buying large numbers of shares at one time.

By bringing in more money, rather than just reducing expenses, you fund your investments without greatly affecting your day-to-day life. That’s important, because you’ll likely be more willing to stay the course it you don’t feel deprived.


For most people, wealth is built a few dollars at a time. If you can save just $10 a day to invest, you would have more than $200,000 over 25 years at a 6% rate of return.

Manage the Liability Side of Your Balance Sheet

Growing your income is important, but you can't lose sight of the other side of your personal balance sheet: liabilities. It makes no sense to invest money in stocks or bonds if you are paying 20% interest for debt on credit cards. Focus on paying off high-interest debt before you think of committing any of your funds to investments.

On the other hand, if your interest rate on a student loan or mortgage is very low, it would probably be a mistake to focus on paying off that debt first. After factoring in inflation, missed tax savings, and the opportunity cost of not investing in better assets, paying off that debt at the expense of investing could result in hundreds of thousands of dollars of lost wealth over a long period of time.

Reinvest All Dividends

One of the most important things you can do to increase your returns in the stock market is to reinvest your dividends rather than take the cash. It might be tempting to spend a dividend check on something fun, but plowing dividends back into the stock that issued them is often the smartest move you can make.

This advice applies to firms with a long track record of paying dividends and, even better, increasing them regularly. If a company has recently cut its dividend, you might consider selling the stock altogether and investing the proceeds in a company with a better dividend-paying history.

Keep Costs Low, and Consider Index Funds

While you're trying to reach that $100,000 milestone, it's important to keep your costs of investing low. That's why it might make sense to begin putting your money in a rock-bottom-fee index fund offered by a giant such as Vanguard or Fidelity.

Index funds track the performance of a benchmark such as the Standard & Poor's 500 Index. Because it costs less for the fund manager to simply mimic an index rather than actively pick stocks, index funds have very low costs: They should be less than 0.15% of your assets and may be as low as .015% per year.


Fidelity offers some index funds with no annual expense fee.

On a fund company's website, you can sign up for a plan that automatically and periodically invests money from your bank account into the fund. You also won't have to be concerned that big annual fees will eat away at your gains.

Frequently Asked Questions (FAQs)

Why is the first $100,000 the hardest to earn?

Investment profits are always a percentage of the principal invested. The more capital you have to invest, the easier it will be to earn any specific dollar amount. For example, a bond may pay a 2% coupon. If you have $20,000, then you will earn $400 from that bond. If you have $200,000 to invest, then you will earn $4,000 from that bond.

How much will I be taxed on my first $100,000?

A single filer who earns $100,000 in a single year lands in the 22% federal tax bracket for the 2022 tax year. However, you don't pay 22% on the entire $100,000. Instead, you'll pay $9,615 plus 22% on the amount over $83,550, which comes out to $3,619 (100,000 - 83,550 = 16,450 x .22 = 3,619). In total, someone who earns $100,000 in 2022 will pay $13,234 in federal income tax ($9,615 + $3,619) before credits, deductions, and other tax situations.

The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Forbes. "#1580 Charles Munger."

  2. Social Security Administration. "Social Security 2023 Changes."

  3. Internal Revenue Service. "Self-Employment Tax (Social Security and Medicare Taxes)."

  4. Internal Revenue Service. "Topic No. 554 Self-Employment Tax."

  5. Internal Revenue Service. "401(k) Plans."

  6. Internal Revenue Service. "Individual Retirement Arrangements (IRAs)."

  7. Fidelity. "No Minimum Investment Mutual Funds."

  8. Internal Revenue Service. "Revenue Procedure 2021-45," Page 6.

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