People who end up with million-dollar investment portfolios aren’t always rich from the get-go. In fact, many ordinary people manage to invest their money in ways that end up making them millionaires. If that’s one of your goals, here are three simple steps to get there.
1. Invest from an early age
When it comes to growing your wealth as an investor, time may be your greatest asset. This is why it is so important to start investing at an early age. And that also means it’s a good idea to start investing even if you only have a few hundred dollars to work with.
In fact, imagine putting $250 per month into a brokerage account or retirement plan over a 45-year period. If you manage to generate an average annual return of 8% during this period, you will end up with more than $1.1 million.
2. Be aggressive
The 8% return we just used in our example? It’s reasonable to work with a stock-heavy portfolio, as it sits a few percentage points below the stock market average. But if you play it safe and stick to more conservative investments, like bonds, your returns could be much lower.
If you’re in your 20s, 30s, or 40s and your goal is to leave your investment portfolio untapped until retirement age, then you really should have the bulk of your assets in stocks. If you spread your assets evenly between stocks and bonds, your portfolio could generate more of an average annual return of 5%. In our example, that would leave you with around $479,000 – still plenty of money, but clearly nowhere near the million dollars you might be aiming for.
The 8% return we were counting on earlier is by no means guaranteed. But if you want to increase your chances of earning strong returns in your portfolio, you’ll need to diversify.
If you stock up on stocks from just one market segment, you risk incurring significant losses if that specific segment crashes. Instead, spread your money around. Buy tech stocks, but also healthcare stocks, energy stocks, banking stocks, and auto stocks.
If the thought of choosing different stocks seems overwhelming, there is another option you can consider: broad-market ETFs. ETFs let you own a whole bunch of stocks with a single investment. And if you get heavy on the S&P 500 ETFs in particular, you will effectively own 500 different companies – without having to acquire them individually.
A $1 Million Wallet Could Be Yours
You might think it takes a combination of high income and luck to be successful as an investor. In reality, it takes the right strategy. If you strive to start investing early in life and do it regularly, chances are you’ll end up with a balanced portfolio you’re more than happy with, especially if you maintain a diverse mix of stocks. or quality ETFs. which lends itself to steady growth over time.