Personal finance personality Dave Ramsey has a unique insight into American millionaires. His company, Ramsey Solutions, interviewed more than 10,000 millionaires across the country between November 17, 2017 and January 31, 2018, which claims to have been the largest survey of its kind.
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Ramsey believes there are two keys for Americans accumulating your first $1 million. Here’s a closer look at these two millionaire-making habits.
1. Invest steadily in growth stocks
Invest consistently in growth-oriented investments mutual funds through a tax-efficient account is one of the main things that “get people their first $1 million to $5 million,” Ramsey said in a YouTube short loaded in February. Eight in 10 millionaires surveyed by Ramsey Solutions said they invested in their company’s business 401(k) Planwhile 75% of them also stated that investing consistently over the long term was one of the main reasons for their financial success.
Growth mutual funds have performed exceptionally well in recent years. If you invested $10,000 in Fidelity Growth Company Fund (FDGRX) 10 years ago would be worth over $56,000 today. That’s an average compound annual growth rate of 18.8%. The top holdings in this fund are some of the best-performing technology stocks of the last decade, including Nvidia and Apple.
Someone with a well-paying job and a little financial discipline could have used this fund to become a millionaire. For example, assuming the 18.8% rate holds, a person earning $100,000 a year could inject 10% of their salary every month into this growth fund and accumulate $1.1 million over 18 years. .
However, past performance is not an indicator of future returns. Technology and growth stocks have seen incredible growth over the past decade, but there’s no way to predict their growth rate in the future.
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2. Pay off your house
Another consistency among millionaires, Ramsey says, was that they had paid off their primary residence. The average millionaire pays off the family home in just 10.2 yearsaccording to Rachel Cruze, an expert at Ramsey Solutions.
The share of mortgage-free homes in the US reached a record high in 2022, just under 40%, according to Bloomberg. The mortgage-free home ownership rate increased by five percentage points between 2012 and 2022.
This asset is a major contributor to the wealth of ordinary Americans. The median home sale price in the U.S. was $420,800 in the first quarter of 2024, according to the Federal Reserve Bank of St. Louis.
Unfortunately, many Americans and first-time homebuyers face an uphill battle getting to this stage. A report from the Harvard University Joint Center for Housing Studies shows that, in 2022, housing costs for approximately 12 million renter families exceeded half of their income. Such high expenses make it difficult to accumulate savings for a down payment. Furthermore, high mortgage rates make it harder to pay off a house sooner.
The shortage of housing units is worsening this crisis. The country faces a housing shortage estimated at 4 million to 7 million units, according to Bank.
For Americans looking to accumulate their first million dollars, focusing on housing can be significantly more challenging than investing in a 401(k) or growth mutual fund.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
