7 Investing Habits of the Wealthy — and How You Can Join Them
Written by
Adam Palasciano
Edited by
Travis Woods
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Historically, investing is one of the smartest ways to grow your wealth over time. While all investing comes with risk, more risk can also mean more reward. It’s no surprise that millionaires understand this concept well.
American adults with a net worth of $1 million or more make up about 2% of the U.S. population, according to The Motley Fool. These individuals tend to have most of their money invested in stocks/mutual funds, real estate and other business interests.
Fortunately, there are several investment tips you can follow to grow your wealth like the 2%.
Here are seven investing habits of the wealthy according to The Motley Fool and Best Ever Commercial Real Estate:
1. Stocks
Most millionaires invest in the stock market, which is one of the smartest ways to grow your money over time. Despite market swings, the stock market typically yields an average historical return of about 10% per year. Individual stocks, mutual funds, index funds, ETFs and REITs can all grow your wealth, and some even pay consistent dividends that will grow your money even further.
2. Real Estate
Real estate is another common investment class of the rich. For example, millionaires often invest in multi-family or multi-unit properties which they rent out to earn a passive income. The idea is that tenants contribute towards their mortgage payments, which can effectively pay off the loan. Meanwhile, the value of the property can also increase over time, further increasing overall net worth.
3. Their Own Businesses
Owning and operating your own business is no joke and can also be challenging. However, if successful, having your own business can also be a vehicle to grow your wealth. People who own and operate their own businesses can sometimes earn more than those who choose to be employees and work for someone else. Not only that, if your business becomes big, you could sell it to someone else at a profit later on.
4. High Level of Financial Discipline
Becoming wealthy requires a very high level of financial discipline. This means investing as much as you can, prioritizing saving and investing money above all else, sacrificing some discretionary spending, and setting deadlines to reach financial milestones.
5. Relentlessly Investing
Consistent investing over time is crucial to wealth accumulation. Consider automatic weekly deposits to your investment account and reinvest your dividend payments to buy more stocks. To add, diversifying your portfolio is key to protecting yourself against market volatility and preserving your wealth.
6. Financial Education
Millionaires spend time educating themselves on financial best practices. Possessing the ability to ask the right questions, carefully analyze investment opportunities and accurately predict economic trends can make all the difference in the success of your investments. Increasing your financial literacy is key to building your wealth.
7. Long-Term Investments
Typically, investing in an asset and then quickly selling it off to make a quick profit yields you fewer gains than sticking to a long-term investment strategy. Selling investments quickly also carries a higher capital gains tax compared with holding investments for the long term. Sticking to more conservative investments such as S&P 500 index funds, bonds, and mutual funds can mitigate financial risk versus riskier investments such as REITs and cryptocurrency.
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