A couple of weeks ago, we talked about how the rich are getting richer in America and how the millionaire population continues to grow. This week, we want to drill down on the characteristics of the “millionaire next door.” Because, the fact is, millionaires are more common than you might think.
We already established that the United States has a lot of millionaires, and the numbers continue to increase. But how did these people get rich? The answer is that most of them built their own wealth by focusing on a few key ideals – educational achievement, the importance of working, and financial discipline. So, do these characteristics really create a millionaire?
Education could actually be a significant factor in the millionaire equation. According to a May 2015 study from the Georgetown University Center on Education and the Workforce, college graduates earn $1 million more than high school graduates on average over the course of their careers. And a Spectrum Group study revealed that 82% of millionaires graduated college (Source: CNBC). These statistics are good indicators that there is a correlation between education and wealth. And it is because of statistics like these that I have always found education to be so important for me, my children, my staff, and even my clients.
Can simply working and investing really lead to making money? The suggested answer is “yes,” based on study results on the matter. According to a Spectrum Group survey, millionaires come from all kinds of career backgrounds. The U.S. Trust study showed that, on average, study respondents started saving money at the age of 14, held their first job at the age of 15, and began investing in the stock market by the time they were 25. Additionally, 83% attributed their wealth to buy-and-hold investment strategies, while 89% believed that equities and debt instruments had produced the majority of their portfolio returns (Source: Forbes). How can we not see the importance of working and investing when findings like these exist?
But, wait – that’s not all! There are other characteristics of millionaires that are worth mentioning.
Taxes are a vital consideration when it comes to growing your wealth. According to the U.S. Trust study, many of these millionaires felt that minimizing the impact of taxes when making investment decisions was more important than considering high returns irrespective to potential tax consequences. Many of our clients share this same view. So, I am grateful that my background as a CPA allows me the ability to provide my clients with comprehensive and custom solutions when it comes to tax sensitive investing.
Professional advice is essential for disciplined investing. This may be my personal favorite statistic about the characteristics of millionaires (and maybe it’s because I’m a little biased) – 78% of millionaires, according to Spectrum Group, turn to financial professionals for help managing their investments. That’s because the truth is that managing investments is difficult work that involves a certain level of discipline. I believe that part of the reason individual investors do not do well on their own is because of the issue of emotion versus reason. As humans, we tend to become emotional about our own “stuff,” especially our money. For instance, fear can lead to selling when an investment’s falling price is near its bottom, while overenthusiasm can create buying when the price is at its peak. These emotional reactions, by mere chance, might work to an investor’s benefit. But, more often than not, when it comes to investing, reason, logic and discipline will likely favor emotion over the long term. Having a professional “voice of reason” to help guide you through can make a difference in pursuing your financial goals.
If you have any questions about your investments or need professional advice, please call our office. We are here to guide you on your journey towards well-being and a prosperous life.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. No strategy assures success or protects against loss. Investing involves risk including loss of principal. Past performance is not a guarantee of future results.