The number of millionaires in the U.S. jumped during the third quarter of 2024, according to Fidelity Investments.
Thanks to a strong stock market surge that is well into its second year, there are now 544,000 401(k)-created millionaires at Fidelity, up from 497,000 in the second quarter. That is a quarter-over-quarter increase of 9.5%.
Meanwhile, 418,111 Fidelity investors were IRA-created millionaires in the third quarter, up from 398,594 in the second quarter. That’s an increase of 5%.
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
Becoming a 401(k) millionaire takes time. A few years ago, The Washington Post 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
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.
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 keep fees low
The year 1995 was very good for the S&P 500 — investments returned 37.2% to investors. Other exceptionally good years included 1975 (37%), 2013 (32.15%) and 2019 (31.21%).
How about 1974, 2008 and 2022? Not so much. The market tumbled in each of those years, ending down 25.9%, down 36.55% and down 18.04% 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.”
4. They diversify their investments
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 that firm went bust.
Because the risk is so great, it’s safer to skip buying just a handful of 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.
5. They don’t take 401(k) loans
Many employers allow workers to take loans from their 401(k) plan. For some people, this can be a big help when times get tough.
But taking such a loan can reduce the size of your nest egg. The money you take out of your 401(k) is no longer compounding, which can damage your long-term returns.
For this reason, it is probably best to avoid taking a 401(k) loan if you can help it. As Fidelity says:
“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.”
7. They never quit
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 were folks who grew up in poverty.
Those folks got rich through hard work, not silver-spoon status.
As we pointed out in “10 Characteristics of Wildly Successful People,” successful people like 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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