According to data from Empower, 9.1% of 401(k) accounts have topped $1 million. This number has been growing in recent years, despite the volatility in the market.
Are you an aspiring 401(k) millionaire? Here are a few tips on how to build wealth and reach that status as quickly — and painlessly — as possible.
Steal this billionaire wealth-building technique
The ultra-rich have also been investing in art from big names like Picasso and Bansky for centuries. And it's for a good reason: Contemporary art prices have outpaced the S&P 500 by 136% over the last 27 years.
A new company called Masterworks is now allowing everyday investors to get in on this type of previously-exclusive investment. You can buy a small slice of $1-$30 million paintings from iconic artists, all without needing any art expertise.
If you have at least $10k to invest and are ready to explore diversifying beyond stocks and bonds,see what Masterworks has on offer. (Hurry, they often sell out!)
Start early
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The earlier you start investing, the more likely you are to reach millionaire status. If you look at the exponential growth curve of investments, the first few years are lackluster. The sooner you get those years behind you, the sooner you can see more exciting growth.
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Don’t try to time the market
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This is Investing 101. Timing market dips and jumps is a fool’s errand. Studies show that time spent with your money in the market trumps timing the best days in the market. Pick a good investing strategy and let it ride.
Don’t try to beat the market
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This is another well-known investing adage. Matching market gains is a much more reasonable expectation than picking the magic winning stocks for your 401(k). Even most active fund managers can’t do it. A smart bet is to try to match the market instead with index funds or similar investments.
Get a free stock valued between $5 to $200
Secret: You don't need thousands of dollars to buy thousand-dollar stocks or create a diverse portfolio.
Robinhood offers a method of investing called “fractional shares.” On its own, one share of a single stock could cost a lot of money, making it difficult to diversify. Robinhood allows you to buy pieces of stock instead, so you have the option to build a diverse portfolio quickly.
Let’s say you want to invest $250, as an example.
With that amount, you could build a relatively diverse portfolio with an investment of $50 in a big tech stock, $50 in a retail stock, $50 in an energy stock, $50 in a manufacturing stock, and $50 in a bank.1
Even better news? Add a Robinhood Gold membership, and you’ll get access to 5.00% APY2on your uninvested cash3and the ability to buy and sell stocks 24 hours a day, 5 days a week.
Open and fund a Robinhood account and earn up to $200 in stock
Set up automatic contributions
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Putting your 401(k) contributions on autopilot is a surefire way to ensure you don’t forget about saving. It also dissuades you from deciding other things are more important than saving for the future.
Get your full employer match
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If your employer offers to match your 401(k) contributions, contribute enough to get your full match. Every dollar your employer contributes to your salary is money you don’t have to.
Maximize your contributions
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As of 2024, you can contribute $23,000 per year to your 401(k). If you contribute the $23,000 maximum each year and receive an 8% return, you’ll be a millionaire in just under 20 years.
Take advantage of catch-up contributions
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If you’re late to investing, note that employees age 50 and over can contribute an additional $7,500 each year in a 401(k). That might not seem like much, but it’s $112,500 (not including any gains) between ages 50 and 65.
Diversify
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401(k)s can hold a variety of assets, including stocks, ETFs, mutual funds, bonds, and cash. Making sure your funds are spread across an appropriate mix of assets is called diversification. It reduces the risk of losing money when your proverbial eggs are not all in one basket.
Take appropriate risks
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Diversification can reduce the unnecessary risk of loss from a single stock or bond, but not every risk is bad. When you have many years left to invest, you can choose assets with greater potential returns because you can handle the ups and downs of the market and trust that it will gain over time. When you approach retirement, it’s wise to shift funds to less risky investments.
Earn up to a $300 bonus and grow your money with up to 4.50% APY
This powerful combination checking + savings account from SoFi® allows you to earn up to a $300 bonus with direct deposit and grow your money with up to 4.50% APY.4
This is one of the top accounts we’ve seen, and offers like this can be rare. You work hard, and now it’s time to make your money work for you — with SoFi, you can grow your money with hardly any effort!
SoFi has no account or overdraft fees5 and additional FDIC insurance up to $2 million on deposits is available through a seamless network of participating banks.67 Plus, you can receive your paycheck up to 2 days early.8
How to earn up to $300: Sign up and make a direct deposit within the first 25 calendar days of the promotional period, then collect a $300 cash bonus with a direct deposit of $5,000 or more.
SoFi is a Member, FDIC. 7
Open your SoFi account and set up direct deposit
Be mindful of tax implications
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401(k) accounts reduce your taxable income when you contribute, but there are also tax implications during retirement. At age 73, you must begin taking required minimum distributions from your 401(k), which can alter your tax bracket and taxable income.
Don’t forget about old accounts
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Do you have an old 401(k) lingering with an employer you no longer work for? Roll it over to your current employer’s plan or an independent IRA so you can better manage your money. You may be able to keep it with your former employer, but independent plans may have a better range of investment options.
Don’t rely on target date funds
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Target date funds are designed for the set-it-and-forget-it investor who has neither the time nor the inclination to create their own portfolio. These funds tend to have higher fees than index funds and don’t typically perform as well as a balanced 50/50 split between stocks and bonds.
Mind your fees
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Some fees are inevitable; the people who support 410(k) plans want to get paid too. However, choosing funds with low fees may help you maximize your investment returns. A 0.5% fee might not seem like much, but compounded over decades, it can make a substantial dent in your investments.
Try index funds
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Unlike actively managed mutual funds, index funds don’t attempt to beat the market’s returns. Instead, they seek to track a preset index (such as the S&P; 500) and match its performance. Since there is no fund manager to pay, fees for these funds are often very low.
Increase your contributions with your raises
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One way to up the amount in your 401(k) without feeling the pinch is to devote a percentage of each raise you get to retirement. Each time your pay increases, your 401(k) contributions will too. Since you didn’t have the extra money before, paying it to your retirement account before you see it will make it much easier to sock away.
Bottom line
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Becoming a 401(k) millionaire may not be easy, but it is simple. Focus on a diversified strategy that is appropriate for your time horizon. Contribute as much as you can consistently and watch compounding interest and dividends work their magic so you can build wealth while you sleep.
Masterworks Benefits
- Invest in art like a millionaire for a relatively low cost
- Art investments have outperformed the S&P 500 by over 131% for 26 years
- Purchase shares of artwork by top artists
- Hedge against inflation and diversify your portfolio
Paid Non-Client Promotion
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