The overwhelming majority of affluent Americans accumulated their wealth not through inheritance, as is commonly believed, but through earned income and investments.
The financial editors at Money Magazine recently interviewed a sample of well-off individuals, coming up with three universal tips that may help average folks to build wealth:
1. Get There Slowly
– While some attained wealth fairly quickly by starting the right business at the right time (or developing a killer app), most entrepreneurs say you can amass the better part of $1 million if you start to earn at a young age and remain persistent about saving for the long haul.
A 25-year-old beginning at $40,000 a year, for instance, who gets 2 percent annual raises and contributes 12 percent of his/her salary each year to a 401(k), would end up with an account worth more than $1 million at age 65, assuming a 6 percent annual return and an employer match of 3 percent per year.
2. Stick with the Basics
– Many wealthy people own non-traditional investments, including hedge funds, timberland, and art, but when they were asked by Money how they made their greatest investment gains, 89 percent said traditional stocks and bonds.
3. Don’t Try to Out-Guess the Market
– With pundits constantly predicting which stocks are heading up or down and which sectors will sizzle or fizzle, it’s easy to get the impression that success lies in shrewdly shifting your money around. The majority of the rich don’t buy that.
Just 14 percent asked by Money said they made the bulk of their investment gains by timing the market; the other 86 percent credited their success to good old buy-and-hold investing. They key, they said, is investing in a diversified mix of stocks and bonds, and riding the long-term upward sweep of the market.
Published with permission from RISMedia.