It’s easy to think that millionaires are just a select few, but you might be surprised to learn that there are many of us out there. According to the Credit Suisse Global Wealth Report, the US claimed more than 25.1 million millionaires in 2023 – about 4.8 percent of adults. Maybe one day you can become one of them.
Becoming a millionaire may be easier than you ever thought, especially if you start thinking like a millionaire. If you want to reach millionaire status, here are a few ways to invest so you can become one.
How to invest like a millionaire
1. Don’t wait to invest
Wealth takes time to grow. The sooner you start investing, the longer the compounded capital has to work its magic on your investments. Your money makes money, with a snowball effect over time.
Waiting just ten years to start investing could mean missing out on thousands, if not millions, of dollars.
Consider this example: Amy starts investing at age 22. She invests €10,000 per year and achieves an annual return of 8 percent. Meanwhile, Jake starts investing at the age of 32. He invests the same amount and enjoys the same annual return as Amy.
But if they both retire at age 62, Amy’s investments will have generated more than $2.6 million, assuming no taxes, while Jake would retire with $1.1 million, assuming there are no taxes.
That’s how important time is to become a millionaire. So find a good broker and start investing if you are not already doing so.
2. Keep long-term goals in mind
Instead of mindlessly saving or investing, millionaires have set goals for both the short and long term.
Maybe you want to start investing because someone told you it’s a good way to build wealth. But you may find that investing now helps you save for retirement, cover a potential emergency, or pay for a major purchase like a house or car. Having specific goals in mind can make it easier to focus on those goals and make them a priority.
3. Invest in diversified index funds
Index funds are a basket of assets, usually stocks or bonds, that share a common theme. Some of the most popular funds track the Standard & Poor’s 500 index, a collection of the top U.S. companies. This index has a track record of 10 percent annual returns over time.
These funds offer many benefits, including instant diversification at a low cost, making them great for both new and long-term investors.
Investing in index funds or Exchange Traded Funds (ETFs) can help you reach millionaire status at a lower price and with less risk.
This is what you should look for with an index fund or ETF:
- Broadly diversified. Look for funds with shares in a wide variety of sectors. This could be an index fund of small cap stocks, international companies or an index fund that tracks a market index such as the S&P 500.
- Invested in shares. Although risky in the short term, stocks offer the best track record of long-term profits.
- Low costs. Most index funds are passively managed, which keeps costs low. It’s easy to find solid index funds with an expense ratio of less than 0.3 percent.
4. Invest when everyone is panicking
When the stock market starts to fall, many investors rush for the exit, hoping to avoid even more short-term losses. The point is that that decline could be a good long-term deal.
“Buy when there is blood in the streets,” is a famous quote from Baron Rothschild, a 19th century banker and member of one of the richest families in history. If the market takes a nosedive, consider picking up undervalued stocks or even cheap S&P 500 index funds while the price is low.
Consider the short but intense bear market triggered by the Covid-19 pandemic in March 2020. The shares plummeted. The markets were in free fall. The S&P 500 had some of the largest single-day losses since the Great Depression.
If you had purchased shares of SPY (a low-cost ETF that tracks the S&P 500) for $228 per share on March 16, 2020, you would have had a 53 percent return on your investment on August 24, 2020.
Investors who cash out when prices are at record highs probably didn’t buy at record highs. They probably bought low, during bear markets, while others may have been worried about the declines. View a market decline as a time to consider putting more money into your investments, not less.
5. Don’t worry about appearance
If you have an idea of what a millionaire looks like, you might want to rethink it. Millionaires don’t have to have flashy cars or mega-mansions. Millionaires can now look just like you.
You don’t have to shop in expensive stores or buy branded items to fit in with the crowd. Instead, put more time and effort into building your wealth through investments, not stuff. Millionaires are not rich because they spend money, but because they haven’t spent it.
6. Make it automatic
Don’t let investing be an afterthought. Consistency is key if you want to invest like a millionaire.
Set up automatic contributions to your investment account on a weekly or monthly basis. By putting your contributions on autopilot, you reduce the risk of unintentionally neglecting your investments. And because it happens automatically, you won’t be tempted to spend the money on something else.
By investing the same amount at regular intervals, you also benefit from dollar-cost averaging. Buying funds regardless of how the market is performing can help you smooth out your average purchase price.
If you’re already contributing to a workplace retirement account, such as a 401(k), you’re already calculating the dollar cost. Most experts recommend investing 10 to 20 percent of your salary in your pension.
If you’re not saving for retirement in one of these tax-advantaged accounts, you should create one, especially if your employer offers a company match. It’s essentially free money for your future – money that can help you become a millionaire even faster.
7. Diversify your investments
If you’ve dumped all your money into the best stocks that you think will make you rich, think again. You’re putting a lot of financial weight on one asset, exposing you to a lot of risk.
Millionaires also think defensively, and often become wealthy by diversifying their portfolios with a mix of stocks, bonds, mutual funds, ETFs and various other securities. They reduce the risk that a particular investment – especially a particularly large one – will hurt them too much.
Don’t put all your money in one type of investment. Instead, spread your money. In the event that there is one security, you have other investments to get you through it. Index funds and ETFs offer instant diversification, so check these first.
You may also want to look at 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 feel a little overwhelmed as to how to proceed. Millionaires call in the experts when they need them.
If you could use some guidance, speaking to a financial advisor can take you to the next level. Financial advisors 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, make sure you’re working with a fiduciary, which means they are ethically obligated to work in your best interest, not their own or their company’s.
Alternatively, you can turn to one of the best robo-advisors if you just need basic portfolio management. These automated investment options often have no minimum investment requirements and offer low fees.
In short
If you want to become a millionaire, it means you have to start thinking and investing like a millionaire. Avoid accumulating debt and start investing for the long term in a diversified investment portfolio. Focus on your own goals, rather than what the crowd is doing, and ask for help when you need it.
Bankrate writer Rachel Christian contributed an update to this story.
