The 1% continues to receive flack across the globe, as income disparity is one of the hottest financial topics worldwide. Whether or not you think that criticism is deserved, thereâ€™s one thing that canâ€™t be denied: the super-rich know how to grow their wealth.
As a regular investor trying to cobble together enough for a comfortable retirement, what can you learn from the wealthiest investors? Read on to find out.
- They save more than average: Instead of spending more, the wealthy tend to save most of their money. According to researchers from UC Berkeley, those in the top 1% save almost 40% of their salary while those in the top 1% to 10% save 12% of their salary. A general recommendation is that you should save between 10% to 15% of your income to maintain your current lifestyle in retirement.
- They live frugally: Many millionaires drive around in used cars and spend money carefully. Warren Buffett famously lives in the same house he bought more than 50 years ago. Instead of upgrading your car or house every time you get a raise, keep your living standards modest.
- They diversify their portfolio: While many CEOs own stock in their own companies, the rich also tend to keep a mix of funds. Proper allocation allows you to better withstand the ups and downs of the market. A mix of growth and income securities is usually recommended.
- They have several sources of income: Donâ€™t solely rely on your day job for income. Wealthy folks often have different ways of earning money, whether itâ€™s from rental properties or side businesses. Earning more money allows you to sock more away in your nest egg.
- They hold stocks for a long time: The ultra-rich understand that investing in the stock market is a long-term strategy instead of a short-term solution. They also keep their cool when the market dips.
- They make saving automatic: The rich like to take the set-it-and-forget-it approach to investing. They create automatic transfers to their retirement accounts so they donâ€™t have to remember to put money away in their 401(k) plans.
- They start early: Time is the most important factor when it comes to growing a significant retirement portfolio. The rich know that they need to start saving as soon as possible to build wealth.
- They max out their retirement accounts: If youâ€™re younger than age 50, you can contribute up to $23,500 a year in your IRA and 401(k) combined. The top 1% know they need to take advantage of these limits.
- They donâ€™t carry debt: Since the rich live frugally, they also pay off their debt. That means buying cars in cash, paying off a mortgage early and not carrying credit card debt. In general, they donâ€™t make a habit of relying on credit for personal expenses.
The Bottom Line
Most of these tips are easier to follow when youâ€™ve already acquired significant wealth. Itâ€™s much easier to live without debt when you have access to a booming bank account, and stashing away 40% of your income may not be feasible for those making just enough to scrape by. But that doesnâ€™t mean the principles listed here are useless for a person who isn’t rich; most can be directly applied to your life. Chances are, most wealthy investors were applying these ideas to their financial approach long before they earned their first millionâ€”itâ€™s probably how they got there in the first place.