We can all be millionaires by retirement! When I shared this on my TikTok and Instagram, most people said one of two things- one million isn’t enough or that they don’t have any money to invest.
Becoming a millionaire seems so unattainable to most that we don’t even take time to take the small steps to get there. In reality, if you’re 35 years old you need to invest $23 per day to be a millionaire by 65. If you currently don’t have the $23 to spare, then perhaps you can look into one of these lucrative side hustles! You can earn $23 in less than two hours if you have the right side hustle.
The earlier you start the more your money will grow. But, it is never too late to start. Something is always better than nothing.
So how do you actually invest this money? Read on to find out the steps to becoming a millionaire by retirement!
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Step 1: Open A Brokerage Account
A brokerage account can be used for 401ks, IRA’s, and non-retirement investment accounts. These accounts allow you to invest in stocks, bonds, mutual funds, and ETFs (we’ll dive deeper into this later, don’t worry!)
There are numerous brokerage accounts out there but the most popular ones are Fidelity, Vanguard, and Charles Schwab.
Your first step is to research which ones you want to open an account with and spend 15-30 minutes opening one! (I personally have accounts with both Fidelity and Charles Schwab but all 3 are very similar!)
Step 2: Decide Which Type Of Account To Open
If you currently already have a 401k and Roth IRA that you are maxing out then you should consider opening an investment account! If you do not have a 401k or IRA then you should consider opening one of those.
Investing for retirement is still investing. The aforementioned retirement accounts have incredible tax advantages so you should take advantage of maxing those out first.
Read: How To Start A Roth IRA
Step 3: Decide How Much To Invest
It’s important to figure out how much you can afford to invest since some options require minimum contributions. Take a few minutes to go over your monthly budget and calculate how much is feasible for you to contribute. Even if it’s just $5 a month, time is on your side so take advantage of any spare funds you have at the end of every month!
Step 4: Determine Where To Invest
The best investments are low risk, high reward, low cost, and diverse. The truth is, finding one individual stock that matches all of that criteria is nearly impossible and requires a lot of luck and strategy.
So what I prefer to invest in are index funds, target date funds, and ETFs!
Target Date Funds
Target date funds are the ultimate lazy way to invest! Target date funds select the investments for you and rebalance them to less risky investments as you age! So if you’re retiring in 20 years, look for a target date fund for 2040 or 2045!
This article will share a few of the best target date funds for 2021.
Index Funds
Index funds are a passively managed mutual fund.
Why index funds? Index funds aim to match the market’s growth rather than attempting to outperform the market. This might sound “boring” but it is the best way to passively invest. I’m all about the simple path to wealth so I am choosing to invest in index funds right now.
The most popular index fund is the S&P 500 which is “an index of performance of the 500 largest U.S. public companies.” This particular index has had a historical annual rise of 10% since 1928!
ETFs
ETFs are Exchange-Traded Funds. These funds are similar to index funds in that they are diverse and low cost with high returns, but they do have some differences.
“ETFs can be traded throughout the day like stocks, whereas index funds can be bought and sold only for the price set at the end of the trading day.” If you’re a long-term passive investor this will not affect your strategy much.
ETFs also typically have options to buy fractional shares or they have a lower minimum investment compared to index funds.
This leads us into the category of fractional investing.
Fractional Investing
If you have a smaller budget but would like to still get started investing, please consider fractional investing! Fractional investing allows you to purchase fractional shares of stocks.
As of now, Fidelity and Charles Schwab offer fractional share investing but Vanguard does not. Here’s a list of other companies that allow fractional share investing.
Additional Tips For Investing
If you’re feeling overwhelmed deciding between the above, just choose 1 or 2 to start with and reassess again down the line. The most important thing is to start investing ASAP because you can’t go back in time!
When I’m contributing to my investment accounts, I Google “best index funds for [current month + year]. There are usually reputable articles posted by Bankrate, NerdWallet, or Investopedia that list the best index funds!
*This article is meant as education and not financial advice*
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