Becoming a millionaire is a goal that many people strive for. There’s an old joke: “Do you want to become a millionaire easily? Start with $2 million and invest in real estate.” It’s a funny joke, but of course not the reality here in Lake Tahoe and our surrounding area, given our skyrocketing property values.
The real way to become a millionaire is a little more mundane than all that excitement. This includes making good choices (hard!), planning (boring!), and sticking to your plan (is that even possible?). Actually, yes, and if you really want to become a millionaire, a little of these three things can go a long way.
There are two main things that mostly determine your success: having good spending habits and investing wisely.
Good spending habits start with creating a budget. Identify the things that are important and reduce the things that are not. Next, avoid high-interest debt. Things like credit card debt and payday loans can really ruin your ability to save and invest, while a home mortgage can be reasonable debt to carry, depending on the terms of your loan. Third, get into the habit of delaying gratification. Instead of buying things impulsively, wait and make thoughtful, well-researched purchasing decisions. Finally, prioritize investments. Make sure you allocate a significant portion of your income to investments, not just expenses. Your savings and investments should be treated as non-negotiable budget items.
As for smart investing, that’s something I’ve written about before in this column. You can cut back all you want, but if your savings are sitting in a bank account earning 1% interest, it’s unlikely you’ll ever reach your financial goals. Keep only a small amount of money in these types of accounts – usually 1-3 months of expenses. With the rest of your savings, consider the following guidelines:
– Diversify. Diversify. Diversify. Even in a simple “stocks and bonds” portfolio, you should have stocks/funds from different sectors, companies of different sizes, and both value and growth stocks. You must invest in companies both inside and outside the United States. And your bonds can be of different grades, different types of companies, different durations. If you want to add real estate and some alternative investments to your portfolio, that may also be wise in some cases.
– Invest at low cost. It is not uncommon to come across investments where the total expense ratio is close to or above 2%. High fees like these can really reduce the growth of your investments! Look for low-cost funds, usually ETFs, and work with a professional who focuses on developing an efficient, low-cost portfolio for you.
– Maintain a long-term perspective. Nothing beats compounding interest over many years. Have a portfolio design that allows you to comfortably stay invested even through dips and spikes in the markets.
– Consistency. Continually contribute to your investments. Automatic contributions from your income can help you steadily build wealth.
If your desire is to become a millionaire, following these basic guidelines will help you make it happen. There are no guarantees, but at least you can stack the deck in your favor.
However you decide to make your millions, invest smart and invest well!
Larry Sidney is an investment advisor representative at Zephyr Cove. Information can be found at https://palisadeinvestments.com/ or by calling 775-299-4600 x702. This is not an invitation to buy or sell securities. Customers can take positions mentioned in this article. Past performance does not guarantee future results. Consult your financial advisor before purchasing a security.