It’s easy to think of billionaires as just a select few, but you might be surprised to learn that there are many of them all around us. According to the Credit Suisse Global Wealth Report, there will be approximately 22 million billionaires in the United States as of 2023. Maybe one day you’ll be one of them.
Becoming a millionaire might be easier than you thought, especially if you start thinking like one. If you want to reach that milestone, here are some ways to invest to become a millionaire, with or without the professional help of a financial advisor.
How to invest like a millionaire
Managing your investments yourself is always an option, and robo-advisors and online brokers make it easier than ever. Working with a financial advisor is also a great option, especially if you’re pursuing big long-term goals. Whether you decide to hire a professional or not, these tips can help you get started.
1. Don’t wait to start investing
Wealth needs time to grow, and the earlier you start investing, the more time compound interest has to work its magic on your investments. Your money will make money, and over time, it will snowball.
Waiting just 10 years to start investing could mean missing out on thousands, if not millions, of dollars in profits.
Consider the following example: Amy begins investing at age 22. She invests $10,000 per year and earns an 8 percent annual return. Meanwhile, Jake begins investing at age 32. He invests the same amount as Amy and earns the same annual return.
However, if they both retire at age 62, Amy’s investment would be worth over $2.6 million, assuming no taxes, and Jake would retire with $1.1 million, assuming no taxes.
Time is of the essence when it comes to becoming a millionaire, so if you haven’t started investing yet, find a good broker or open a 401(k) through your employer and get started.
2. Keep long-term goals in mind
Instead of mindlessly saving and investing, millionaires set both short-term and long-term financial 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 might help you save for retirement or pay for a big purchase like a house or a car. Having a specific goal in mind will make it easier to focus and prioritize it.
3. Invest in diversified index funds
Index funds are a collection 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 the top U.S. companies. The index has recorded annualized returns of 10 percent over time.
These funds offer many perks, including low cost and instant diversification, making them suitable for beginners and experienced investors alike.
Investing in index funds and exchange-traded funds (ETFs) can make you a millionaire at a lower cost and with less risk.
Here’s what to look for in an index fund or ETF:
Diversify broadly. Look for funds that hold stocks from a variety of industries. This might include ETFs of small cap stocks, international companies, or ETFs that track a market index such as the S&P 500.
I invested in stocks, which have short term risks but have the best track record of profits in the long term.
Low cost. Most index funds are passively managed, which helps keep costs low. It’s easy to find solid index funds with expense ratios under 0.30%.
4. Invest when everyone else is panicking
When the stock market starts to fall, many investors rush to sell to avoid further losses in the short term. But that drop can lead to big gains in the long term. If the market crashes, you might want to consider buying undervalued stocks or a low-cost S&P 500 index fund while prices are low.
Legendary investor Warren Buffett said, “Be fearful when others are greedy and greedy when others are fearful.”
Consider the short but intense bear market that began with the pandemic in March 2020. Stocks plummeted and markets crashed. The S&P 500 experienced its biggest one-day loss since the Great Depression.
If you had purchased shares of the SPDR S&P 500 ETF (SPY), a low-cost ETF that tracks the S&P 500, on March 16, 2020 for $228 per share, you would have enjoyed a 53% return on your investment by August 24, 2020. Even over the course of a few months, your investment gains would have been significant.
Investors who cash out when prices hit record highs probably didn’t buy at record highs. They more likely bought low during a bear market when others were panicking about falling prices. Use a market downturn as a time to consider putting more money into your investments, not less.
5. Don’t worry about appearances
If you have an idea of what a billionaire is, you might want to rethink it. Billionaires don’t have to have fancy cars or big houses, because the billionaire you have in your head isn’t necessarily real.
You don’t need to shop at expensive stores or buy name brand items to blend in with the crowd. Instead, spend more time and effort on building wealth through investments instead of things. Millionaires aren’t rich because they spend money, they’re rich 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 weekly or monthly deposits into your brokerage account. Automating your deposits reduces the risk of accidentally neglecting to invest, and it also means you won’t be tempted to spend money on other things.
Investing the same amount regularly also gives you the benefit of dollar-cost averaging: you buy funds regardless of market movements, leveling out your average purchase price.
If you already contribute to a 401(k) or other retirement account at work, you’re already practicing dollar-cost averaging. Most experts recommend investing 10 to 20 percent of your salary for retirement. But even if you can’t afford to put that much money into your savings, remember that a little goes a long way, so make sure you invest what you can regularly.
If you don’t have your retirement savings saved up in one of these tax-advantaged accounts, you should open one, especially if your employer offers company contributions. This is essentially free money to put towards your future, money that can help you become a millionaire faster.
7. Diversify your investments
If you’re putting all your money into a single asset that you believe will make you rich, think again. You’re putting a huge financial commitment and huge risk on a single asset.
Millionaires also think defensively, building their wealth by diversifying their portfolios with a mix of stocks, bonds, mutual funds, ETFs, and a variety of other securities. They reduce the risk that one investment, especially a very large position, could do them a disservice.
Avoid putting all your money into one type of investment. Instead, diversify your money. If one security crashes, your other investments can help you weather it. Index funds and ETFs offer instant diversification, so consider these first.
You may also want to consider other investments, such as real estate, to add diversity to your portfolio.
8. Get the help 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 turn to experts when they need them.
If you need advice, consulting a financial advisor can take you to the next level. A financial advisor can help you create a long-term financial plan that takes into account all aspects of your financial life, from investments and retirement planning to life insurance and estate planning. If you hire a financial advisor, be sure to work with a fiduciary, because they are ethically obligated to work in your best interest, not their own or their company’s.
Alternatively, if you just want basic portfolio management, you could turn to one of the best robo-advisors. These automated investing options often have no minimum investment requirements and low 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 who can help you reach your financial goals.
Conclusion
If you want to be a millionaire, start thinking and investing like a millionaire. Avoid piling up debt and start investing for the long term with a diversified investment portfolio. Focus on your goals, not what everyone else is doing, and seek help from a financial advisor when you need it.
—Bankrate writer Rachel Christian contributed to an updated version of this article.
