We tend to think of the millionaires as a select few, but you might be surprised to know that there are many of us walking around. According to the Credit Suisse Global Wealth Report, there will be nearly 22 million millionaires in the United States as of 2023. You might be one of them someday.
Becoming a millionaire may be easier than you think, especially if you start thinking like a millionaire. If you want to reach that benchmark, here are some investment methods that can make you a millionaire, with or without the professional help of a financial advisor.
How to invest like a millionaire
Managing your own investments is always an option, and robo-advisors and online brokers make it more accessible than ever. Working with a financial advisor is also a great option, especially if you’re chasing big long-term goals. Whether you hire a professional or not, these tips can help you get started.
1. No need to wait to start investing
Wealth takes time to grow. The sooner you start investing, the more time compound interest has to work its magic on your investments. Your money makes money and snowballs over time.
If you wait just 10 years to start investing, you could be missing out on thousands, if not millions, of dollars.
Consider the following example. Amy started investing at the age of 22. She invests $10,000 per year and earns an 8% annual return. Jake, on the other hand, starts investing at age 32. He invests the same amount as Amy and enjoys the same annual return.
However, when they retire at age 62, Amy’s investments will be worth more than $2.6 million, assuming no taxes, while Jake will retire with $1.1 million, assuming no taxes.
That’s why time is of the essence when it comes to becoming a millionaire. So find a good broker or open a 401(k) through your employer and start investing if you haven’t already.
2. Keep long-term goals in mind
Rather than saving and investing recklessly, millionaires set both short-term and long-term money goals.
Think about what’s important to you. For example, you might want to start investing because someone told you it’s a good way to build wealth. But investing now can help you save for retirement or pay for big purchases like a house or a car. Having a specific goal in mind makes it easier to focus and prioritize that goal.
3. Investing in a diversified index fund
An index fund is a basket of assets (usually stocks or bonds) that share a common theme. Some of the most popular funds track the S&P 500 index, a collection of America’s top companies. This index has a track record of delivering 10% annual returns over the long term.
These funds offer many perks, including instant diversification at low costs, and are suitable for beginners and experienced investors alike.
By investing in index funds and exchange-traded funds (ETFs), you can achieve millionaire status at a lower price and with less risk.
Here are some things to keep in mind when looking at index funds and ETFs:
It is widely diversified. Look for funds that include stocks from a wide range of industries. This may include ETFs that track small-cap stocks, international companies, or market indexes such as the S&P 500. Invest in stocks. Although there are risks in the short term, stocks offer the best returns in the long term. Low cost. Most index funds are passively managed, which helps keep costs low. It’s easy to find a solid index fund with an expense ratio below 0.30%.
4. Invest when everyone else is panicking.
When the stock market starts to decline, many investors rush to exit, hoping to avoid further losses in the short term. The problem is that its decline could be a big problem in the long run. If the market takes a dive, you may want to consider picking up undervalued stocks or low-cost S&P 500 index funds while prices are low.
Legendary investor Warren Buffett said, “Be fearful when others are greedy, and be greedy when others are fearful.”
Consider the short but intense bear market started by the pandemic in March 2020. Stock prices plummeted and the market was in free fall. The S&P 500 suffered its biggest one-day decline since the Great Depression.
If you bought shares of SPDR S&P 500 ETF (SPY), a low-cost ETF that tracks the S&P 500, at $228 per share on March 16, 2020, you would have earned a 53% return on your investment by August 16. This means that they were able to enjoy the benefits. 24, 2020. Even if it’s only for a few months, you’ll have seen a significant increase in investment returns.
Investors who cash out when prices are at record highs probably didn’t buy at record highs. They probably bought low during a bear market when others would have panicked at the drop. Think of market declines as a time to consider putting more money into investments, rather than less.
5. No need to worry about looking the part
If you know what a millionaire is like, you might want to think again. Millionaires don’t need flashy cars or huge homes. What a millionaire looks like in your head isn’t necessarily what reality is.
You don’t have to shop at expensive stores or buy products from famous brands to blend in with the crowd. Instead, put more time and effort into building wealth through investments rather than material goods. Millionaires are not rich because they spend money, but rather because they don’t spend money. Spend your money on your future, not on things.
6. Automate
Don’t put off investing. If you want to invest like a millionaire, consistency is key.
Set up automatic contributions to your brokerage account weekly or monthly. By putting your contributions on autopilot, you reduce the risk of inadvertently neglecting your investments. It also happens automatically, so you won’t be tempted to spend your money on other things.
Investing the same amount at regular intervals also helps you reap the benefits of dollar-cost averaging. Purchasing funds regardless of market trends helps to smooth out the average purchase price.
If you’re already contributing to a workplace retirement account, such as a 401(k), you’re already practicing dollar-cost averaging. Most experts recommend investing 10% to 20% of your salary into your retirement fund. However, even if you can’t do that much, remember that even a little bit can have a big effect, and try to do what you can on a regular basis.
If you aren’t saving for retirement in one of these tax-advantaged accounts, you should open one, especially if your employer offers a company match. It is essentially free money for your future and money that will help you become a millionaire faster.
7. Diversify your investments
If you put all your money into the best stocks thinking you’ll get rich, think again. You end up putting a lot of financial weight on a single asset and exposing yourself to a lot of risk.
Millionaires also have a defensive mindset and often get rich by diversifying their portfolios with stocks, bonds, mutual funds, ETFs, and a variety of other securities. These reduce the risk of one investment being too damaging, especially a particularly large position.
Avoid putting all your money into one type of investment. Instead, spread out your cash. If one security stumbles, you can get by with other investments. Index funds and ETFs provide quick diversification, so check them out first.
You may also want to look at other investments, such as real estate, to add diversity to your portfolio.
8. Get the support you need when you need it
You don’t have to start investing alone. If you’re starting from scratch, you might be a little confused about how to proceed. Millionaires call in experts when they need it.
If you could use some guidance, talking to a financial advisor can take you to the next level. A financial advisor can help you create a long-term financial plan that considers all aspects of your financial life, from investments and retirement planning to life insurance and real estate planning. If you hire a financial advisor, be sure to work with your fiduciary. Because fiduciaries are ethically obligated to work in your best interest, not their own or their company’s.
You can also turn to one of the best robo-advisors if you just need basic portfolio management. These automatic investment options often have no minimum investment requirements and have lower fees.
How to find a financial advisor
Need expert advice on managing your investments or planning for retirement? Bankrate’s AdvisorMatch connects you with CFP® professionals to help you achieve your financial goals.
conclusion
If you want to become a millionaire, start investing by thinking like a millionaire. Avoid accumulating debt and start investing for the long term with a diversified investment portfolio. Focus on your own goals, not what others are doing, and seek help from a financial advisor if you need it.
— Bank Rates Writer Rachel Christian contributed updates to this article.
