By SJS Investment Services Founder & CEO Scott Savage.
When you hear the word “millionaire“, what pops into your head? It may be a picture of Elon Musk. Or maybe an upward stock market chart. Or even a Wall Street trading floor.
And yet, the typical millionaire may surprise you. In the book The Millionaire Next Door: The Surprising Secrets Of America’s Wealthy, first written in 1996 and updated in 2010, authors Thomas Stanley and William Danko studied who are the millionaires within the United States and how they have become millionaires. They identify seven common denominators among people who successfully build wealth:[1]
None of these traits surprises me. I have repeatedly seen our clients exhibit these traits over the past 25+ years. We work with people from all sorts of different backgrounds with all sorts of experiences. In addition to the traits above, I think the below characteristics and actions tend to help clients grow their wealth over time:
They adjust their lifestyle to save money each year.
They come from all sorts of occupations, and many don’t make make large salaries, yet they almost always figure out a way to save some money each year.
They prepare for adversity.
Most have an emergency fund that gives them the confidence to survive unexpected job loss, health problems, or financial adversity. They have necessary insurance - such as health, disability, umbrella, and life insurance - to protect themselves and their families in case of unexpected events. Additionally, they ensure their important life documents are updated - including wills, trust documents, healthcare POA, and advance directives.
They have a larger goal for their wealth.
They are motivated to do something meaningful with their wealth, such as providing for their family as well as donating to charitable causes.
They focus on the long-term.
They know it may take decades for them to become millionaires. They create an investment plan that will allow them to not have to focus too much on their investments over the short-term. They know the power of compounding over the long-term, and control what they can while letting markets do the work.
They invest in what they understand.
Most invest in low-cost, broadly-diversified stock and bond mutual funds & ETFs. However, many invest in their businesses, or in certain niches of investing that they know a lot about. They know that if they don’t feel comfortable with their investments, they will probably not stick with the plan.
They don’t pay too much for their investments.
While there isn’t one right way to invest, there are many ways to lose wealth. Paying more than you need to for investments is one of them.
They continuously learn about the world.
They know the world is always changing, and they need to continuously learn and evolve to keep up.
They rely on advisors when they need to.
When they don’t know something or can’t put in the time, they work with advisors - such as accountants, financial advisors, and estate-planning experts - to accomplish their goals.
More than 90% of high net-worth families lose the family wealth after three generations.[2] My hope is that if we can better listen, understand, create strategies, and implement plans to help people invest better, then more people will be able to achieve their goals, and pay it forward by helping others along the way.
So the next time you hear the word “millionaire“, I hope the image that pops into your head is your modest, hard-working neighbor.
Important Disclosure Information And Sources:
[1] The Millionaire Next Door: The Surprising Secrets Of America’s Wealthy. Thomas Stanley & William Danko, 2010, Taylor Trade Publishing.
[2] “5 lies you’ve been told about generational wealth.” Pavithra Mohan, 18-Jul-2019, fastcompany.com.
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