7 Lessons 401(k) Millionaires Can Teach You

A sudden surge of wealth has lifted many Americans into the category of millionaire status.

Fidelity Investments says that as of the end of the first quarter of this year, 157,000 people who are enrolled in Fidelity workplace savings accounts had $1 million or more in their 401(k)s.

The number of 401(k) millionaires surged by 45 percent over the first quarter of 2017, Fidelity says.

What are these folks doing right that has allowed them to amass such wealth? Here are seven characteristics they share. Use these lessons as a model for your own wealth-building efforts.

1. They save for a long time

Becoming a 401(k) millionaire takes time. Fidelity says internal analysis shows that most people who achieve 401(k) millionaire status take 30 years to do so.

A get-rich-quick psychology is a surefire path to failure. So, be patient. Slow and steady will win the race.

2. They trust the market

Fidelity reports that the vast majority of gains in the past year — 70 percent — were the result of market gains. Just 30 percent of the increase was due to employee and employer contributions.

When the stock market is stagnant — as it has been for most of 2018 — or falling, it’s easy to get discouraged. But America has been through the Great Depression, the Great Recession and countless financial crises in between. From time to time, the ship that is the U.S. economy takes on water and begins to list a bit. But it always rights itself and moves full steam ahead.

Those who become 401(k) millionaires trust the process, believing that market gains will return. And to date, the market has always richly rewarded their faith.

3. They put money to work at all times

Fidelity notes that 24 percent of people who take a loan from their 401(k) plan temporarily cut back on their efforts to save for retirement — or stop saving altogether.

Such interruptions can be disastrous to your attempts to build wealth. On the road to becoming a 401(k) millionaire, it is crucial to keep going instead of taking occasional pit stops. Once you are rich, there will be plenty of opportunities to stop and see the sights.

4. They keep fees low

The year 1995 was very good for the S&P 500 — it returned 37.2 percent to investors. Other good years included 1975 (37 percent) and 2013 (31.15 percent).

How about 1974 and 2008? Not so much. The market crashed, ending those years down 25.9 percent and down 36.55 percent, respectively.

While you can’t control how the market performs in any given year, you can keep your expenses low at all times. Choosing passively managed mutual funds can help trim your expenses dramatically, as we report in “Warren Buffett’s Sane and Simple Retirement Investing Plan.”

As the Oracle of Omaha says:

“If returns are going to be 7 or 8 percent, and you’re paying 1 percent for fees, that makes an enormous difference in how much money you’re going to have in retirement.”

5. They also invest in an IRA

People who invest money through both a 401(k) and an IRA have balances that are three times higher on average than those who save in just a single vehicle.

A common misperception holds that you can only invest in a 401(k) plan or an IRA, not both. But for the vast majority of income earners, that’s not true. So, if you have extra cash, put it to work.

6. They diversify their investments

Putting all your money into one or two stocks might help you get rich overnight.

Of course, it’s just as likely that you will lose everything. Just ask Enron employees who parked all of their retirement money in company stock before the firm went bust.

Because the risk is so great, it’s safer to skip buying one or two individual stocks and instead park your money in well-diversified mutual funds. Buy a mutual fund that tracks the S&P 500, and you instantly will own shares in hundreds of companies. If one of those firms goes broke, you will hardly feel it.

The Fidelity study points out that 98 percent of companies offer target date funds, which offer diversification and lower risk as employees near retirement. As a result of this trend, Fidelity says, “employee asset allocation has improved greatly over the last 10 years.”

7. They never quit

As we pointed out yesterday in “10 Characteristics of Wildly Successful People,” successful people such as 401(k) millionaires never stop working hard.

A U.S. Trust survey of people who have investable assets of at least $3 million found that 77 percent of these wealthy individuals reported growing up in families that were middle-class or poorer. They got rich through hard work, not silver-spoon status.

The conclusion is clear:

If you aren’t willing to put in the hours and make some sacrifices, you might as well get accustomed to mediocrity. The best things in life — whether that’s money in the bank or a great relationship with your spouse or child — typically come only with significant effort.

Are you a 401(k) millionaire, or on the way to becoming one? Share your tips in comments below or on our Facebook page.