With the arrival of the new year, many Americans have made New Year’s resolutions and are starting to act on them. Some common goals people set are financial resolutions such as paying down debt or saving money.
Three self-made millionaires have investing tips based on their personal experiences that can help grow wealth in the coming year.
A Simple Plan Ensures Long-Term Growth
A complicated investment strategy isn’t necessary to build wealth over time. Adhering to a simple plan can ensure long-term financial growth.
Investing in low-cost index funds is one way to start. Low-cost index funds track and attempt to replicate a market’s movement. For example, funds that track the S&P 500 provide diversity but don’t need to charge higher fees to pay a fund manager.
Ramit Sethi is a self-made millionaire and money expert. He told CNBC Make It, “We often believe that rich people have access to secret investments, and that’s how they make a ton of money. I have access to those investments, and I can tell you right now, they typically do not perform better than a simple S&P index fund.”
Diversifying investments is most likely to provide long-term success. It’s a time-tested strategy, as it maintains appropriate risk and makes consistent contributions.
Starting Early Is the Best Strategy
Time is the one asset that is instrumental in building wealth. Investing as early as possible is financial advice most people who invest would agree on. Money pros understand that compound interest is one of the most powerful ways to grow wealth.
People’s money earns interest, and all the gains are added to the principal. Interest is then earned on all of it, compounding wealth over time.
Steve Adcock, a self-made millionaire and early retiree, spoke to CNBC about how he wished he’d invested in his 20s: “The one thing I really wish I did more of was saving, and especially investing more aggressively. It’s exponential growth. The longer you invest, the more money you’ll have at retirement. Period.”
Setting up contributions from a paycheck to a 401(k) plan or automating investments will help people start to build the habit of investing.
“You’ve got to invest 10% of your salary every year. And at the end of the year, increase that by 1%. Do this for as long as you can and you will be a multimillionaire,” he says.
Spotting Red Flags
You don’t need to be a professional to start investing. An experienced financial advisor can offer valuable guidance, but choosing the right one is essential. The wrong one could hurt more than help.
Tess Waresmith, a self-made millionaire, learned that lesson before she became a financial educator. While working on a cruise ship, she listened to a friend who said that instead of hoarding money, she could have it work for her. So, she turned to a financial advisor to help her grow her savings.
“With stock market investing, I was really afraid to do it wrong, so I hired a financial advisor, and they made a lot of really bad decisions on my behalf,” Waresmith says.
The advisor encouraged her to buy into an annuity “better suited for people in their 50s. I was 26,” she says.
The experience cost her and taught Waresmith to be aware of red flags when choosing a financial advisor and the products they might try to sell. If she’d been more aware of potential red flags, she might have turned to a fee-only advisor who takes a flat fee as payment instead of a cut of her earnings.
Some red flags to be aware of are if the advisor isn’t transparent about where money is being invested, the money isn’t growing as expected, or it isn’t clear how much the advisor is getting paid.
“It’s tough to identify red flags if you don’t have basic knowledge of investing. And when I say basic knowledge, I mean reading one or two books or taking one course. You don’t have to have a PhD in investing or be an analyst, but I didn’t really see red flags, because I wouldn’t have even been able to recognize them back then,” Waresmith says.
