How Much to Invest to be Considered ‘Wealthy’

Setting goals is one of the first steps when creating a financial plan. The goals you make help you pick investments, set a reasonable timeline, and fix an investment budget. Some people set goals like saving for a house, preparing for retirement, settling debt, etc. Others may set monetary targets and milestones. For instance, creating a wealth of $XXX by age 35, 45, 55, and so on. Monetary targets are easier to set and achieve as there is little ambiguity. They are also easy to track. The target you set for yourself will differ based on your needs, income, and general outlook toward life and money. However, every now and then, surveys on how people perceive wealth can act as indicators or roadmaps for you to follow.

A recently conducted survey by Schwab revealed that an average net worth of $2.2 million is needed to qualify a person as being wealthy. The same study conducted by Schwab in 2021 showed an average net worth of $1.9 million to be considered rich. If you are comparing your investments, income, and current net worth with these figures, you may not be alone. However, before you jump to any conclusions, it is essential to understand how this data is collected, what constitutes a person’s wealth, and how you can build wealth for yourself. Consider consulting with a professional financial advisor who can guide you on how to create wealth by investing your money in the right instruments and asset classes to secure your financial future. 

This article discusses how much money you need to be considered wealthy at retirement and what steps you can take to build wealth for yourself.

How much money do you need to be rich?

If you compare the results of the same survey conducted over the last five years, you will see how there cannot be a single figure to aim for to be rich. The value of money, the amount of money required to fulfill your needs, and your needs themselves are likely to change over time. These factors, as well as others like your income, market movements, the state of the economy, inflation, pandemics, etc., impact how people perceive wealth. For example, in 2018, $2.4 million was the acceptable average net worth to be considered wealthy. In 2019, this lowered to $2.3 million. In 2020, it increased to $2.6 million, and in 2021 it drastically dropped to $1.9 million. One of the reasons for the drop in 2021 can undoubtedly be attributed to the COVID-19 pandemic and the issues created due to it. However, it is essential to note that other events – whether similar or different, are bound to crop up in the future and alter the definition of being wealthy again. Therefore, you would have to keep adjusting your investment budget and align it to your changing needs as and when time demands.

How much money to invest to be wealthy?

The amount you need to save depends on the number of years you have on you to accumulate the required wealth. Investing from the age of 30 gives you more time allowing you to invest a relatively low amount per month, compared to if you start investing at 40. The later you start investing, the more you will need to invest. Taking the above example of $2.2 million in 2022, you would need to invest per following:

  • If you have ten years to reach the target of $2.2 million, you would need to invest $12,861.61 per month, assuming you get a return of 7%.
  • If you have 20 years to reach the target of $2.2 million, you would need to invest $4,334.66 per month, assuming you get a return of 7%.
  • If you have 30 years to reach the target of $2.2 million, you would need to invest $1,881.22 per month, assuming you get a return of 7%.
  • If you have 40 years to reach the target of $2.2 million, you would need to invest $890.13 per month, assuming you get a return of 7%.
  • Lastly, if you have 50 years to reach the target of $2.2 million, you would need to invest $437.12 each month, assuming you get a return of 7%.

The answer to how much money I need to start investing quite simply lies in your age and investment horizon. The longer you have, the less you invest at a time.

How to get rich by investing?

It is essential to understand that the wealthy do not earn all of their wealth through jobs or investment returns but through assets. Most high-net-worth individuals draw their wealth from businesses, assets like real estate, passive income, and more. Many of them are also born to wealth, while others make it through off-beat careers like athletes, artists, etc. Achieving their net worth may not be feasible for most investors through traditional means like a salary from a corporate or public job or rental income. However, you can still achieve your goals and be financially secure through investing by following the tips given below:

1. Consider investing in stocks

Investing in stocks can be one of the ways to get rich primarily because of inflation protection. The right stocks can deliver inflation-beating returns, which helps you generate profits that can stand the test of time. On average, the S & P 500 has returned 8% to 12% returns annually. The index contains the top 500 largest U.S. publicly traded companies. While the index has not delivered consistently, and there have been highs and lows, the average performance has been favorable. Even though the inflation rate hit record highs in 2022, the average inflation in the country since 1913 has been around 3.1%. Therefore, on the whole, a long-term investment strategy in stocks can prove to be suitable for creating wealth.

Stocks offer several benefits. They represent your ownership in a company. So, not only do you get to earn returns, but you also get a small stake in the company. Further, some stocks offer dividends too, which can be a good passive income. Stocks are also great for emergencies as they are highly liquid. You can invest or redeem anytime you want. While there are tax liabilities in the form of short- and long-term capital gains, you still have the option to make a withdrawal if the need arises. Stocks can be an excellent way to diversify your portfolio too. You can invest in multiple different sectors and companies. You can choose small or big companies. Further, you can select between penny stocks, growth stocks, global stocks, small, mid, or large-cap stocks, and more.

2. Maximize your 401k retirement account

The commonly seen and used retirement account, the 401k, may be overlooked for its potential. But if used correctly, there is a lot that a 401k can offer. The 401k is a company-sponsored retirement plan that most organizations provide to their employees. One of the most significant advantages of a 401k is the employer match. For every dollar invested by you, your employer can choose to match it partially or wholly up to a percentage of your salary. This free money can significantly double up your retirement corpus sooner than anticipated. In 2022, you can contribute up to $20,500 to a 401k. Your employer can match 100% of your annual salary. However, the total limit cannot be more than $61,000 for employee and employer contributions. For 2023, you can contribute up to $22,500 to a 401k. Your employer can contribute up to 100% of your annual compensation. However, the total limit cannot be more than $66,000 for employee and employer contributions.

Tax savings are another significant benefit of a 401k. A 401k is a tax-advantaged account with tax exemptions either now on contributions or later on your withdrawals. The tax advantages also extend to employer matches. There is no income tax on the employer’s 401(k) matching contributions until you make a withdrawal. Further, 401ks offer great investment options that can provide diversification and prospects for growth. However, it is essential to be consistent in creating wealth through a 401k. Starting early can be an advantage. Additionally, make sure that your contributions to the account do not stop when you switch jobs. Roll over the account every time you pick a new job or continue investing in the old one. If you are wondering how much to invest in a 401k, remember to maximize your contributions according to the prevailing Internal Revenue Services (IRS) limits. This will ensure maximum tax savings, high employer match, and of course, help you reach your target sooner.

3. Diversify the investments in your portfolio

Diversification is a strategy that refers to investing in different types of investments. A diversified portfolio invests in more than one asset class, market capitalization, sector, etc. For instance, in the case of stocks, you can invest in domestic and global stocks, tech and pharma stocks, small and large-cap stocks, etc. On a broader level, you can invest in stocks and include some bonds, cash, real estate, gold, etc., to give your money better opportunities to generate a yield.

Diversification is also essential to lower risk. Every investment has a unique pattern and the way it reacts to a situation. For instance, gold grows in value with inflation as it is a commodity. Therefore, it can be a great hedge against inflation. Bonds have an inverse relationship with interest rates, as bond prices move up when interest rates go down and vice versa. Some companies and stocks may flourish in a recession due to consumer demand, while others may see severe lows. Different investment products react differently to different market cycles. Therefore, investing in multiple products helps you create a suitable blend that can offer risk reduction and better earning potential.  

4. Start planning and managing your finances early

You may often think about how much money you need to start investingHowever, your investment success is not solely limited to the amount you invest but also the time for which you invest. As stated above, the investment amount required to reach the $2.2 million target will differ depending on how early you start investing. Young investors have a considerable edge over others as they have more time to make mistakes, learn from them, and slowly build wealth without stress. Even if you have a lower salary when you are young compared to the later stages of your career, saving $500 per month is still a lot more convenient and doable than saving 12,000 per month. A longer investment horizon also offers compounding benefits. The power of compounding is often called the eighth wonder of the world. Compounding essentially reinvests your profits back into the market to earn a higher yield. When you start investing early, your earnings are repeatedly reinvested and generate a significant yield at the time of maturity. And the more money you earn, the better prepared you are for financial emergencies. This also reduces the need to take loans, which helps you save money on paying interest and clearing your debt. Ultimately, you save more and invest more.

5. Get professional assistance from a financial advisor

Being wealthy has no fixed formula. However, you can follow some tried and tested steps to be financially secure and plan for all your goals. And while you may not always know what to do, a professional financial advisor can help. Financial advisors can help with a number of things like tax planning, debt management, savings and investments, inflation planning, and more. Financial advisors may also be a great support at critical events in your life where money plays an integral role, such as a divorce, having a child, receiving an inheritance, retirement, etc. Further, you can benefit from hiring a financial advisor if you have little time or knowledge to track your investments or look for lucrative market opportunities. They can help you avoid mistakes, monitor your investments, recommend timely exits to prevent losses, help minimize debt, and much more. A financial advisor can be the voice of reason and give you an experienced and professional perspective on financial planning. This can immensely add to your wealth over time. Financial advisors can be hired for specific reasons like tax or investment planning or to comprehensively manage your finances. You can take a call based on where you stand right now financially and how much wealth you aim to create.


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To conclude

Being wealthy can mean different things to different people. Therefore, aiming for the target of $2.2 million may not be the right strategy for everyone. Your financial needs depend on your city of residence, marital status, children, lifestyle, and more. Factors like education, generational wealth, health, etc., can also contribute to the wealth you are able to create. For instance, a college graduate may have access to a high-paying job straight away. However, a high school graduate may take more years to reach the top. The roles can also be reversed. Irrespective of the money you earn or your profession, following the basic principles of wealth creation, like a long-term investment, diversification, consistency, using workplace retirement accounts, etc., can be helpful. Hiring a financial advisor can also be recommended to avoid mistakes or delays.

Use the free advisor match tool and get matched with 1-3 qualified financial advisors who can guide you on how to build wealth to secure your financial future. All you need to do is answer a few simple questions about yourself and the match tool will help connect you with advisors suited to meet your needs.

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