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Start Growing Your Wealth to a Million Dollars

Start Growing Your Wealth to a Million Dollars

Getting Started

Do a search for 'how-to-start-investing-in-your-20s' and you'll be greeted with a variety of websites with lists of things to do when starting to save or invest for the future. Some will start off with 'Determine your investment goals'. When I was in my early 20's the last thing I'd be thinking about is creating goals. That right there would cause me to put off the process in lieu of doing something more interesting, like grabbing a beer or two with friends. While determining your investment goals is important in the long run, I'd say most people at that age would just answer with 'get rich', or 'make as much money as I can', or 'retire early'. All great ideas, but difficult to really wrap your head around and form an action plan. So instead, let's skip this one for now and just start doing the things that require the least amount of effort (including 'thinking too much').

The list of things below should be done for most people just starting out regardless of long-term goals. And remember, this site is called GrowToMillion which implies growing your overall net worth over time. It is not about growing your money for your next vacation or vehicle purchase. The $1 million dollar goal is really an arbitrary amount. It's really the percentage growth that matters. But $1 million sounds a lot more exciting. If you make $9 / hour and grow your wealth to $500,000 that's still an enviable position to be in. So, let's not obsess too much on the $1 million target, but more on the mechanics of growing your wealth regardless of where you end up.

I'm going to assume you've already got the basics covered, like opening a checking and savings account. If not, there are plenty of websites out there to walk you through that process. Check out https://www.bankrate.com for a list of banks offering the best yields. And do yourself a favor, check the interest rate(s) that you're getting on any savings. Banks are great at telling you when they raise their rates. They're not great at letting you know when they lower their rates...that's up to you to find out through your own due diligence.

The Simple List:

  • Open a Traditional IRA
  • Open a Roth IRA
  • Contribute to your 401K
  • Open a non-retirement brokerage account
  • Start investing in the S&P 500

The S&P 500 is an index that represents 500 of the largest companies listed on U.S. stock exchanges. By investing in it, through funds that track the index, you're effectively investing in a broad range of sectors and companies, which helps spread out risk. Historically, the S&P 500 has offered strong returns over the long term. While past performance is not indicative of future results, the index has a track record of recovering from downturns and achieving growth over time. On average, this index returns around 10% per year. Keep in mind that is the average as the index could drop by 25% one year, and go up 35% the next year, and so on. But again, we're talking long-term growth potential to building your wealth, not short-term gains to spend on your next vacation. Investing in an S&P 500 index fund is a form of passive investing, which means it requires less active management compared to picking individual stocks. This often results in lower fees and less time needed to manage investments. S&P 500 index funds are highly liquid, meaning you can easily buy or sell your investment without a significant impact on its price. The S&P 500 is often used as a benchmark to measure the performance of investment portfolios, making it a standard choice for gauging market trends and performance. And lastly, many investment platforms offer easy access to S&P 500 index funds, making it a straightforward option for both new and experienced investors.

Once you've got this going, then you can branch out into other things, like investing in individual stocks to help "boost" your growth. Some say that over time individual investors can't beat the market. And this is fine, by growing WITH the market, your money can theoretically double approximately every 7 years if it is growing by 10% per year (check out the Rule of 72). However, imagine in 2007 you only owned the S&P 500 through an index fund. Then you learned about the iPhone when it releases in the same year. Investing in the S&P 500 provides broad market exposure, but making a strategic decision to invest in Apple at the launch of the iPhone would have led to significantly outperforming the market, given Apple's exceptional growth. This move exemplifies a focused investment strategy where identifying and capitalizing on pivotal moments in a company's history can yield substantial returns beyond the average market performance. Apple's split-adjusted stock price at the end of 2007 was $7.08. Today, Jan 21, 2024 it is $191.56, meaning it has generated an annualized total return of about 24%, handily beating the S&P 500's 9.8% during that same time frame. And that figure doesn't even account for Apple's dividends that it has been paying out since 2012. Note: Apple used to pay dividends between 1987 and 1995 as well. If during this entire timespan you were invested in both the S&P 500 and Apple you'd be beating the market (i.e. the S&P 500) for the past 17 years. So, it is not impossible to beat the market, but it does require good timing which is not easy to do. Nobody knows for sure how these things will play out. Apple could have gone the way of BlackBerry (BB) (formerly Research In Motion - RIMM) and been worth a fraction of what it is today. But those are the calculated risks we can take to help create outsized gains.

Lastly, since I'm not a registered or licensed investment professional, the information provided regarding investing in the S&P 500 or any individual stock is for educational and informational purposes only and should not be construed as financial advice. The statements made are not intended to be a recommendation to buy or sell any security or to invest in any specific financial product. Investment decisions should be based on an individual's own financial situation, goals, and risk tolerance. It is recommended to consult with a financial advisor before making any investment decisions.