7 Secrets You Should Learn From 401(k) Millionaires

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

Fidelity Investments says that thanks to the recent stock market surge, a record number of 401(k) and IRA accounts Fidelity manages — 441,000 — now have balances of at least $1 million.

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

1. They save for a long time

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Becoming a 401(k) millionaire takes time. The Washington Post has noted that most people who achieve 401(k) millionaire status take a tortoise-like 30 years to do so.

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

2. They trust the market

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When the stock market is stagnant or falling, it’s easy to get discouraged. But America has been through the Great Depression, the Great Recession and countless other financial crises. And in each case, the nation has recovered.

It’s likely that we will recover from the coronavirus pandemic, too. 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

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Fidelity notes that taking a loan from your 401(k) account can be hazardous to your financial health:

“Using a 401(k) loan for elective expenses like entertainment or gifts isn’t a healthy habit. In most cases, it would be better to leave your retirement savings fully invested and find another source of cash.”

On the road to becoming a 401(k) millionaire, it is crucial to keep going instead of taking occasional — or permanent — pit stops. Once you are rich, there will be plenty of opportunities to stop and see the sights.

4. They keep fees low

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

How about 1974 and 2008? Not so much. The market crashed each of those years, ending down 25.9% and down 36.55%, 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%, and you’re paying 1% 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

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In May 2019, Fidelity reported that people who invested money through both a 401(k) and an IRA had an average balance of around $307,000. That was nearly three times the balance of those who saved in just a 401(k) alone.

So, if you are investing the maximum in a 401(k) plan and still have a little money to burn, put it into a Roth IRA.

6. They diversify their investments

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

Of course, it’s just as possible 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.

7. They never quit

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A 2016 U.S. Trust survey of people with investable assets of at least $3 million found that 77% of these wealthy individuals reported growing up in families that were middle-class or poorer. And 19% of those success stories grew up in poverty.

These folks got rich through hard work, not silver-spoon status.

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

“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.”

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