One Simple Possible Way To Become A Millionaire

The number of savers hitting the millionaire mark has set yet another all-time high, according to data from Fidelity Investments.

In the first quarter of 2021 the number of people with 401(k) or IRA plans that held at least $1 million in assets rose to 365,000, while the figure for IRA savers hit 307,600, reported the brokerage.

Chalk it up in part to the recovery of the stock market following the pandemic crash of early 2020, but there’s more going on here.

Yes, the stock market is up again, but you can’t make money by investing nothing. A big factor in the rise in the number of millionaires has to do people choosing to save more and with automatic enrollments in 401(k) plans across the country.

Around 17% of workers increased contributions in the first quarter, while 37% of employers — a record — automatically added new workers in their plans.

Meanwhile, more savers decided not to take money out of 401(k) plans, a hallmark of pandemic pressure. So more money stayed invested and grew with the market.

Simple lesson

And that’s the lesson of long-term thinking when it comes to retirement saving. The simple combination of steady contributions and time usually brings with it significant growth in retirement balances.

That’s because most retirement plans reinvest income, such as dividends and interest payments, and they reinvest gains through rebalancing. Continual contributions matter a lot, but so does internal growth from the investments themselves.

That’s what financial advisors refer to as compounding growth. Effectively, a rising market means that a given plan should double in a set period of years, say a decade if you assume historical returns.

But continuing to contribute and by reinvesting, you can supercharge your portfolio’s size, even if returns are roughly the same over time. Toward the end of several decades of growth a compounding investment can accelerate in value.

So it’s hardly a surprise that the number of millionaires in a big retirement plan would set records, even considering the dramatic market decline in 2020. After all, the broad stock market ended the year up more than 16% — a very good performance if you were able to ignore the events of the day and keep plugging along.

One of the simplest ways to become a millionaire is to save and invest and take the long view on the stock market. It’s not exciting, but it works.

MarketRiders, Inc. is a registered investment adviser.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.  Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.