Millionaires make up about 2% of the adult population in the United States, according to a wealth report by Henley & Partners. It's a select group, overall. For self-made millionaires, it usually takes good money management and smart investing to get there.
If you want to get better at investing, it makes sense to learn from the people who have been successful at it. Here are a few of the most common millionaire investing habits.
1. They invest in stocks, real estate, and their own businesses
Wealthier Americans distribute their money differently than everyone else. Visual Capitalist created a chart breaking down average asset distribution at each net worth tier, starting at $10,000 and going all the way up to those with $1 billion.
Millionaires put their money into appreciating assets (assets that can grow in value). In particular, people with net worths of $1 million or higher tend to have more of their money in the following:
- Stocks/mutual funds
- Real estate
- Business interests
Those in the $10,000 and $100,000 tiers invest in those, too, but not nearly as much. They have a much larger portion of their wealth in their primary residences and their vehicles.
Fortunately, you don't need to be a millionaire to invest in the same types of assets. You can buy stocks, mutual funds, and real estate investment trusts (REITs) with many online stock brokers.
2. They make it automatic
For those who want to invest their way to $1 million, there are a couple ways to improve your odds. Set aside at least 20% of each paycheck for savings and investments, and make this automatic.
Tom Corley talked to 233 millionaires for his Rich Habits study. He found that nearly half (49%) followed what he coined the "saver-investor" path. They amassed a fortune by diligently saving and investing a portion of their income.
Many of the millionaires in Corley's study automatically contributed 10% of each paycheck to 401(k) plans with their employers. They had another 10% automatically sent to a savings account, and then an investment account.
3. They avoid hedge funds, venture capital, and private equity
There's a misconception that millionaires get access to better investments than everybody else. While some investments are only available to people with a large net worth, they're not better investments -- and most millionaires don't even use them.
Take the professionally managed hedge funds available to wealthy investors. Average hedge fund returns normally lag far behind the returns of the S&P 500, which anyone can invest in through index funds.
Millionaires largely stick to the same public investments that are available to everyone. A study by the National Bureau of Economic Research found that only 10% of millionaires invest in hedge funds, venture capital, or private equity.
How to invest like a millionaire
Anyone can follow the same investing habits that work for millionaires. Here's a quick summary of how to do it:
- Invest a portion of every paycheck. While many millionaires invest 20%, choose any amount that you can afford -- you can always increase it later. The key is consistency.
- Prioritize investing through retirement accounts. Individual retirement accounts (IRAs) and 401(k) plans are excellent options because of their tax benefits. Start with these, and if you have money left over, you can invest it through a taxable brokerage account.
- Put your money in proven investments. Most millionaires have money in the stock market, which has an average historical return of about 10% per year. Real estate is another popular investment of those with $1 million or more.
Investing doesn't need to be complicated. In fact, it's better if it isn't. The approach above has worked for plenty of self-made millionaires to build wealth, and it could do the same for you.
