For most people, $1 million sounds like a lot of money. After all, the United States’s median per capita income hovers between $40,000 and $45,000 per year. At that salary, it would take the average American over 20 years to earn $1 million. With living costs rising far faster than wages, it’s unlikely that the typical worker could ever hope to save $1 million over the course of his or her career.
Fortunately, stocks and mutual funds make it easy for regular people to grow their savings. If you’re capable of saving a few thousand dollars per year, you might be able to earn $1 million by making a series of judicious investments in the stock market or certain mutual funds. However, this type of performance isn’t guaranteed: Folks who become overconfident can make poor investment decisions that demolish their savings and put their plans to retire on hold. Additionally, periodic economic downturns can cause:
- Less seasoned investors to panic
- Sell their stock holdings near the “bottom” of the market
While it might seem prudent at the time, such a move can arrest or even reverse the savings growth that most investors experience.
Ways You Can Invest in The Stock Market or Mutual Funds
If you’re looking to earn $1 million in stocks or mutual funds without altering your lifestyle or earning significantly more than the national median income, you’ll need to keep several things in mind. First, you’ll need to set a “growth goal” that outlines the amount by which you’d like your holdings to grow each year. If you’re serious about earning $1 million in the stock market over the course of your working life, this goal will need to be fairly aggressive. Most financial experts recommend aiming for annual investment growth of at least 12 percent.
Secondly, you’ll need to invest at least 10 percent of your earnings into the market. If you earn $45,000 per year, this will amount to at least $4,500. Depending upon your age and risk appetite, you’ll need to invest in a mix of dividend-paying stocks and more aggressive “growth” stocks. If your portfolio contains too many “growth” stocks, it could be exposed to sudden market downturns. If your portfolio contains too many dividend stocks, it might not meet your 12 percent growth target.
Finally, you’ll need to start investing at a young age. According to the experts, people who start investing at age 25 are several times more likely to earn $1 million in the stock market.