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The road to becoming a millionaire is closer than you think.

With a tax-advantaged retirement account and the power of compounding interest, you can become a 401(k) millionaire.

Here’s what you need to know.

1. Start investing early

Your company’s 401(k) should not be viewed as an optional benefit. Rather, your 401k is an essential wealth-building tool that can make you a millionaire.

Due to the power of compounding interest, the earlier you start investing, the better.

For some, that may be easier said than done.

However, if you haven’t started investing though a 401(k), it’s never too late to start.

Don’t use your past mistake as an excuse not to participate in the future.

Let’s take a look at an example to see the power of compounding interest.

We can use the Make Lemonade investment calculator to see how much a 25-year-old will have in a 401(k) plan at retirement based on annual contributions and investment rate of return.

If a 25-year-old investor invests $4,600 annually for 40 years in a 401(k) at a 7% annual return, that investor would have approximately $1.02 million at age 65.

In comparison, if a 35-year-old investor invests $10,000 annually for 30 years in a 401(k) at a 7% annual return, that investor would have approximately $1.02 million at age 65.

If you are older than 35, have not invested in a 401(k) and plan to retire at age 65, then you will need to invest more each year to try to hit the $1 million goal.

2. Contribute the maximum amount to your 401(k) annually

Pay yourself first.

Every dollar that you invest in your 401(k) is an investment in your future.

Each year, make sure to contribute the maximum amount to your 401(k).

Currently, you can contribute $18,000 per year to a 401(k).

In addition to your regular income, you can use bonuses and raises to help meet the 401(k) annual limit.

If you are 50 years-old or older, you can contribute $6,000 additional per year.

If you are not contributing the maximum amount each year, you should increase your contributions to reach your retirement goal of becoming a millionaire by the time you retire.

3. Take advantage of your employer match

If you work for an employer that offers a 401(k) employee match, this is a financial benefit that you cannot miss.

An employer match is free money.

What if you think you can’t contribute to your 401(k) because you have too many life expenses?

Answer: your expenses are too high.

Invest in your retirement first, then set your spending based on what you have left.

You also don’t have to choose between saving for retirement and paying off debt like a mortgage or student loan.

Do both.

Always make your required monthly debt payment, and contribute at least enough to your 401(k) to receive an employer match.

Apply any remaining funds to whichever is higher – your interest rate (pay down debt) or expected investment return (fund retirement).

4. Read the fine print

When you choose your 401(k) investments, don’t just throw darts at the board.

Read the fine print of each fund that is offered through your 401(k).

All funds are not created equally.

At a minimum, compare fund performance, management fees and expense ratio.

Index funds tend to have lower fees than actively-managed funds.

5. Leverage the power of compounding

The power of compounding is a powerful force that can propel you to 401(k) riches.

Here is an extreme example to show you how the power of compounding can help propel your portfolio.

What would you rather have:

1. 1. A penny that doubles in value every day for 30 days

1. $5 million

Without blinking, most of us would choose $5 million.

However, you would rather have a penny that doubles in value every day for 30 days. Why?

After 30 days, your penny would have grown to $10.7 million.

Your portfolio won’t grow 100% each day for 30 periods, but this example demonstrates the positive impact that compounding can have on your retirement.

Final Thoughts: The Naysayers

Some people say that becoming a 401(k) millionaire is impossible or is a poor investment vehicle. Why?

“You can earn a higher return on other investments.”

“You won’t be with the same employer for 40 years.”

“You can’t access your money for 40 years.”

“Many employers do not offer an employer match.”

“It’s very hard to contribute the maximum amount to your 401(k) each year.”

All of these statements could be true based on your personal circumstances.

Besides a 401(k), there are plenty of other ways – and perhaps better ways – to become a millionaire, too.

For example, you can start a successful business or invest in venture capital deals.

Remember: a 401(k) is one way to become a millionaire. It’s not necessarily the only way, a guaranteed way or the best way.

However, these factors can increase your chance to become a 401(k) millionaire:

1. Investment Amount: the more capital you invest, the more potential for growth (in a rising market environment)
2. Time Horizon: the longer your time period, the more opportunity for growth
3. Investment Return: the higher your investment return, the faster you can achieve meaningful wealth

Zack Friedman is a keynote speaker and Founder & CEO of Make Lemonade, a personal finance comparison site that helps you save money and live a better financial life.

Over the past year, in particular, it seems that Amazon is untouchable.

Credit cards. Prime Day. Cloud computing. TV shows. Bookstores.

Now, as Wall Street focuses on Amazon’s announced acquisition of Whole Foods, there is another component of the Amazon empire that may start to garner more attention.

Amazon’s lending business.

Over the past year, Amazon Lending has made more than $1 billion in small business loans to sellers on its marketplace.

Since 2011, when Amazon launched its lending business, Amazon has made more than $3 billion in small business loans to more then 20,000 Amazon sellers in the U.S., United Kingdom and Japan.

“We created Amazon Lending to make it simple for up-and-coming small businesses to efficiently get a business loan, because we know that an infusion of capital at the right moment can put a small business on the path to even greater success,” said Peeyush Nahar, vice president for Amazon Marketplace, in a statement. “Small businesses are in our DNA. Amazon is providing capital to small businesses to help them expand inventory and operations at a critical period of their growth. We understand that a small loan can go a long way.”

How Amazon Lending Works

On an invitation-only basis, Amazon offers short-term business loans from $1,000 – $750,000 to micro, small and medium-sized businesses that sell products on the Amazon platform. Amazon does not disclose interest rates, but they tend to be lower than credit cards.

Merchants can be approved for a loan within 24 hours, and tend to use the loan proceeds for inventory financing and business expansion.

Unlike traditional lenders that may have lengthy loan applications that require all types of documents, Amazon uses internal algorithms to invite sellers to the program based on the popularity of their products, inventory cycles and other factors.

Loans are typically repayable in less than one year, and borrowers use sales generated on the marketplace to repay Amazon in fixed monthly payments, which are deducted from the borrower’s Amazon account. There are no origination fees or prepayment penalties.

According to Amazon, more than 50 percent of the small businesses that Amazon lends to take a second loan from Amazon.

Amazing Lending: How Amazon Benefits

Among others, this business provides several benefits to Amazon:

• Amazon earns interest income from lending to merchants
• Third party sellers can sell more products, which adds to more commissions for Amazon (since Amazon takes a portion of merchant sales)
• Amazon earns extra revenue by charging sellers who want Amazon to provide storage, packing and delivery services
• Amazon can mitigate credit risk by accessing its own real-time data on seller businesses and customer reviews

If you win the next Powerball drawing, you could walk away with $650 million.

It’s easy to imagine how you might spend all that money.

Before you start spending your impending fortune, however, it’s important to ask yourself one question.

What do you actually do if you win the lottery?

Here’s what you need to know and how to execute your lottery financial game plan:

1. Sign the back of your lottery ticket

It sounds so simple, but it is the easiest step to take for granted.

Despite the advent of technology, you still need to sign the back of a winning lottery ticket.

Why? Like a check, a lottery ticket is considered a bearer instrument.

Whoever signs the winning lottery ticket and presents a valid photo ID can claim the lottery prize.

So, sign your ticket right after you purchase it so you protect yourself in case you lose your winning ticket.

2. Choose a one-time, lump-sum payment or installment payments

You have 60 days from the day you present your winning ticket to determine how you want to receive your prize.

You have two choices when you win the lottery: you can receive a one-time, lump-sum payment or 30 installments over 29 years.

If you choose the lump-sum payment, you will receive your prize winnings upfront, and immediately will owe income tax on the full amount.

If you choose the installment plan in the form of an annuity, each installment payment will be taxed.

Which should you choose?

It depends in your personal preference.

Financially, a dollar today is worth more than a dollar tomorrow. If you choose the lump-sum payment, you have the peace of mind of receiving all the funds today and can invest the proceeds to earn a financial return.

However, if you prefer to set an allowance for yourself to help control spending, an annuity payment plan can help instill fiscal discipline.

You should compare the after-tax proceeds and your intended investment return (lump-sum payment) with the after-tax annuity payments and intended investment return (installment payments).

Overall, you will want to consider the time value of money — that is, how much you can earn under each scenario comparing the timing of the payments that you receive.

3. Assemble your financial and legal wolfpack

If you win the lottery, you may need help managing your new fortune.

It is critical to have a team of trusted advisors to help you manage an array of investment, accounting, tax and legal issues.

Expect to be approached by just about every type of advisor who wants to lend a helping hand.

Invest the time to make careful selections about who you want in your inner circle. Not all advisors are created equally, so you will want to vet personally each new advisor you retain.

Don’t outsource this function. It’s your money, and you need to protect it.

You should interview each prospective candidate, and make sure he or she understands your goals.

Make sure to check their credentials to ensure they are properly licensed.

Advice is not always free so make sure to understand their fee arrangements before you retain them.

Most importantly, hire a team that tells you “no.”

The last thing you want is a team that says “yes” to every time you want to spend money on large purposes.

It’s your call how you spend your money, but it’s helpful to have a team that gives you honest advice even if it’s not what you want to hear.

4. Don’t abandon your budget

Wait, you just won hundreds of million of dollars. Why would you still need a budget?

Financial discipline doesn’t go away when you become a millionaire.

You may have more money, but that doesn’t mean the same principles of personal finance do not apply.

With more financial resources, there may be more things to purchase.

That’s why budgeting is even more essential.

Develop an action plan that accounts for your monthly and annual spending. Categorize your major expenses. Understand your income sources.

One strategy to instill financial discipline is to live off your income, not your prize winnings.

Therefore, you can preserve principal.

5. Take care of your heirs with an estate plan

If you have an existing estate plan, now is the time to update it.

If you have never put one together, now is the time to create one.

When you win the lottery, or have any major life change, it’s essential to ensure that your estate plan reflects your new reality.

With an estate plan, you will want to protect your estate, institute tax planning and consider how to provide for your heirs.

George Soros. Carl Icahn. Dan Loeb. Steve Cohen. Stan Druckenmiller.

Titans of the hedge fund investment world.

Soros brought down the Bank of England. Icahn won big on Herbalife. Dan Loeb forced change at Yahoo.

The secret to their success?

Here are five investment lessons from these legendary hedge fund investors that you can apply to your investment portfolio today:

1. Develop an investment thesis

An investment thesis is the underlying reason why you are investing in a stock. With the exception of momentum traders and quants, most hedge fund investors develop an investment thesis before they deploy capital. For example, the investment thesis can mean the stock is undervalued and underappreciated by investors or there may be a catalyst such as a potential take-out acquisition on the horizon.

Hedge fund investors conduct rigorous fundamental research, build financial models and identify catalysts that will propel the current share price toward their target share price. They don’t invest blindly based on stock tips from a broker or a news article. Rather, they invest in sectors and companies they understand and where they have done their homework.

Warren Buffett, although not a hedge fund investor, only invests in companies he understands. If he can’t understand the business model, he passes on the investment opportunity.

Key Takeaway: Only invest in companies you understand. Develop a thesis of why you are investing. Do your homework and understand the numbers behind the company’s products and services. 

2. Risk-Reward

In a bull market, it’s easy to expect that a company’s share price will rise 10%. However, hedge fund investors don’t think of investments as a unidirectional bet. Rather, each investment has a risk-reward ratio. If an investor is long a stock, the reward is the probability that the share price will rise, and the risk is the probability that the share price will fall. Share prices rise and fall for several reasons, including financial performance, company or industry news, competitor dynamics, analyst ratings and other factors.

Before you invest, assess the probability of the risk-reward of each investment. You can develop the reward-risk ratio by reading analyst research, reviewing the company’s public filings and management presentations, or developing your own financial projections.

For example, if you think that there is a 50% probability that a share price could rise or fall, that’s probably a poor investment choice. Since the reward-risk ratio is 1:1, it’s no different than flipping a coin.

Key Takeaway:  Look for investment opportunities where the reward-risk ratio is at least 3:1, meaning the upside potential is three times greater than the downside potential of the company’s share price.

 

Warren Buffett made $12 billion in 2016 and reclaimed his position as the second richest person in the world, according to Forbes’ billionaire rankings.

How did he do it?

There are three primary reasons behind his investment performance, which helped increase his net worth to $74 billion.

1. The Election

Although Buffett supported Hillary Clinton during the 2016 election, and even provided free trolley rides for voters to travel to the precincts, it was Donald Trump’s victory that helped propel a broad stock market rally. Buffett’s Berkshire Hathaway, which has gained 11.5% since election day on November 8, captured nearly half its share price increase in the two days after the election.

But, the broader stock market rally doesn’t explain the whole story. Buffett’s underlying stock picks may provide guidance for your investment portfolio selections heading into 2017.

2. Bank Stocks

Buffett has been a long-time fan of banks and other financial services companies, including Wells Fargo, American Express, Bank of America, Goldman Sachs and others. Let’s look at Bank of America as an example. In 2011, Buffett invested $5 billion in Bank of America in exchange for $5 billion of preferred stock and warrants to purchase 700 million shares of Bank of America stock at an exercise price of $7.14 per share. At the time, Bank of America traded at about a 50% discount to tangible book value. Today, Bank of America’s share price is $22.45 and trades at about a 30% premium to tangible book.

Why have financial stocks as a sector risen almost 17% since the election?