How To Make $1 Million While Everything’s Expensive, According To Fidelity
Written by
John Csiszar
Edited by
Levi Leidy
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Prices for nearly everything have jumped significantly since before the coronavirus pandemic. This can make saving $1 million for retirement more challenging, as many households have less room in their monthly budgets due to increased costs. But the fundamentals behind saving for retirement remain the same.
“It’s really about patience,” says Ryan Viktorin, CFP®, vice president and financial consultant at Fidelity’s Investor Center in Framingham, Massachusetts. “With a repeatable process, it can happen over time.”
What is that process? Here’s how Fidelity Investments recommends investors chart their path to saving $1 million.
Create a Road Map
Just like you can’t drive to your destination without knowing where you’re going, it’s hard to build a seven-digit nest egg without making a plan. This doesn’t have to be a formal investment policy built with a financial advisor. It can be as simple as making some calculations and setting up transfers to an investment account. But according to Fidelity, only about one out of every three Americans ever takes the time to create one. As could be expected, those that do have a financial plan report feeling much more confident than those who don’t.
The important things to include in a plan are your current financial status, your long-term objectives and the steps you will take to reach your goals.
Implement a Savings Strategy
Probably the single most important step in creating long-term wealth is to start investing consistently as early as possible. Always put money into your investment accounts before you use it for anything else, a strategy known as “paying yourself first.”
Your first goal should be to set aside enough every month to get your full 401(k) match, if applicable. That’s the closest thing to free money you’ll ever receive.
Next, be sure to boost your savings rate as your income grows. Many Americans fall behind because they increase their spending right along with their income. Discipline yourself to avoid this tendency, and it will pay off big-time in retirement.
As much as possible, try to save in tax-advantaged accounts, such as 401(k) plans and IRAs. These accounts offer tax-deferred growth until withdrawal and usually offer tax benefits on contributions as well.
Don’t Invest Too Conservatively
If you’ve got a long-term investment goal like retirement in mind, you’ll need to invest in stocks, according to Fidelity. While stocks can be volatile over the short term, over the long run, they offer one of the best risk-reward profiles of any investment.
The S&P 500 index, for example, has returned an average of about 10% per year over the long run, enough to double your money in just over seven years. In spite of its volatility, the S&P 500 index has never lost money over any 20-year rolling period, something to keep in mind as a long-term investor.
Avoid High-Cost Investments
Even seemingly small fees can act as a big drag on investment returns over long periods of time. with an initial investment of $100,000 earning 7% annually, paying a 1.5% fee instead of a 0.5% fee could result in $142,155 less after 30 years, according to ICCU.
Costs have been dropping for investments like mutual funds for years. The average expense ratio on an equity fund was just 0.42% in 2023, according to Fidelity. But exchange-traded funds, which can be bought and sold on the open market like stocks, typically have even lower fees, averaging just 0.15% in 2023.
Automate, Automate, Automate
As emotion often plays a big role in investing, it’s best for your long-term plan to take it completely out of the equation. The best way to do this is to automate your investment transfers. Whether coming directly out of your paycheck and going into your 401(k) plan or automatically transferring from your bank account to your investment account, any system that doesn’t require you to remember to make your contributions is helpful.
Manage Risk
When it comes to building long-term wealth, slow and steady wins the race. Avoid taking on too much risk by putting all your eggs in one basket or buying speculative investments. Diversify your accounts, monitor them regularly and consistently invest, no matter what the current market condition.
Shield Your Assets
Major, unexpected financial losses can torpedo even the soundest of financial plans, so it’s important to consider the right types of insurance policies. The last thing you want to have happen is for a fire, earthquake or even a personal injury lawsuit to take away the money you’ve been working so hard to build. Proper insurance coverage will protect you from these catastrophes and keep your wealth-building plan intact.
The Bottom Line
Even with everything being more expensive these days, the principles behind building wealth remain the same. All of these steps can help you build that $1 million nest egg no matter how expensive your day-to-day life has become.
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