How to Invest Like a Millionaire (When You're Not One) The majority of millionaires are self-made. And they have a different way of thinking. Here is how to think the way they do.
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Lots of people dream of becoming a millionaire, but few actually know what it takes to get there. Most millionaires weren't handed their wealth, and few stumbled upon it by luck. A mere 20 percent of them inherited their money, according to Thomas J. Stanley's book The Millionaire Next Door. The conclusion? The majority of millionaires are self-made.
So, if you want to be a member of that elite group, exactly how do you make a million bucks? The truth is, there's no secret handbook for millionaires. Most of them follow typical investing best practices. But you do need to be smart with your finances, so do your research and invest strategically.
Stanley, author of the "millionaire" book, also believes that attitude is a contributing factor. "One of the reasons that millionaires are economically successful is that they think differently," he writes.
Ready to start thinking differently and invest smartly, to make your own million? Here are four tips to help you get there:
1. Be conservative.
When you picture today's millionaires, do you imagine them recklessly gambling with their money and buying and selling stocks at the drop of a hat? Actually, the opposite is true. Most millionaires are very conservative with their money. They are focused more on avoiding risk than on the potential gain they might make from an investment.
Millionaires know that being cautious with their money will ensure they retain and slowly grow their wealth. Too big of a risk, and everything could be lost all at once. But that doesn't mean millionaires don't take any risks. "If you embrace risk at the right time, you can actually reduce it over the long term," Spencer Jakab, author of Heads I Win, Tails I Win, in an article for TIME.
Don't be blindsided by the possibility of a large reward when you choose an investment. Avoid investments that are too risky, and be strategic with the investments you do make.
2. Diversify your investments.
One of the biggest investment mistakes you can make is to bet all your money on one horse. Millionaires know that to avoid risk, they need to have a diverse portfolio. That way, they aren't relying on one company. If one of the companies they've invested in takes a hit, they won't lose everything.
According to a study by Spectrem Group, millionaires invest 44 percent of their assets in stocks. This is typically how most millionaires make their money. They're strategic in which stocks they buy and how they build their portfolio. They tend to favor low-risk stocks and invest in both foreign and domestic companies.
The younger an investor you are, the riskier investments you can make. As you get older, you'll want to lower the amount of risk associated with each investment you make, to ensure your finances are stable for the long term.
Millionaires also invest much of their wealth in real estate. With the right property, you can stand to make a lot of cash. Whether you decide to flip houses or look for rental properties, real estate is a potentially lucrative investment opportunity.
3. Minimize fees and costs.
In an interview with Bloomberg, Warren Buffett, CEO of Berkshire Hathaway, said, "Success in investing doesn't correlate with I.Q. once you're above the level of 25. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing."
Successful investors don't have to be the smartest financial minds. But they do know what to do to hold on to their wealth. The U.S. Trust survey found that 90 percent of participating millionaires believed that the best investment strategy is the "buy-and-hold" approach.
By holding on to their investments, millionaires maximize their returns. They keep their transaction costs and other fees to a minimum to ensure the highest possible return.
4. Seek out advice
No man is an island, and neither, it seems, are millionaires. Not all millionaires are investment experts, and many of them choose to seek out help with their portfolios. Spectrum Group finds that two-thirds of millionaires consult with an advisor.
Millionaires know they don't need to have all the answers or do intense research on each and every investment. They leave that work to their advisor. But they don't rely on their advisors completely. They are aware of the market, their investments and what's going on. They are involved in the management of their portfolio but know when to seek guidance.
Are you skilled at investments? What are your top tips? Let me know in the comments below: