Many Americans make New Year’s resolutions as the calendar winds down each year. And financial resolutions like paying down debt or saving more money are some of the most common goals people set year after year.
Depending on how you define it, you may not be able to get rich in a single calendar year. But there are steps you can take to increase your wealth, regardless of where you’re starting.
With that in mind, here are three investing tips from self-made millionaires on how to grow your wealth in the coming year, drawn from their personal experiences.
1. Keep it simple
You don’t need a complicated investment strategy to build wealth over time. In fact, sticking with a simple plan can help ensure long-term growth.
One way to do that is by investing in low-cost index funds — investment vehicles that aim to copy a market’s movement. Funds that track the S&P 500, for example, can provide diversity without needing to charge higher fees to pay a fund manager, thus eating into investor gains.
“We often believe that rich people have access to secret investments, and that’s how they make a ton of money,” self-made millionaire and money expert Ramit Sethi previously told CNBC Make It. “I have access to those investments, and I can tell you right now, they typically do not perform better than a simple S&P index fund.”
It may seem like you could get rich quicker by getting in on a hot new cryptocurrency or by putting all your money on a stock that has historically performed well. But those strategies come with huge risks — past performance does not guarantee future results and even the most seasoned investors can’t time the market.
You’re more likely to find long-term success with time-tested strategies like diversifying your investments, maintaining appropriate risk and making consistent contributions.
2. Start early and level up automatically
When it comes to building wealth, the one asset you can truly never get back is time. Starting to invest as early as you can may be the most agreed-upon financial advice out there because money pros know compound interest is one of the most powerful ways to grow your money.
When you invest, the money you put in earns interest. Those gains are added to your principal and you earn interest on all of it — compounding your wealth over time.
“The one thing I really wish I did more of was saving, and especially investing more aggressively,” self-made millionaire and early retiree Steve Adcock previously told CNBC Make It, reflecting on his 20s. “It’s exponential growth. The longer you invest, the more money you’ll have at retirement. Period.”
You can take it a step further by automating your investments, like by setting up automatic contributions from your paycheck to your company’s 401(k) plan if that’s available to you. That helps you get started and build the habit of investing, Sethi said.
“My best advice for people in their 20s when it comes to money is to set up an automatic investment,” he said. “If you are in your 20s, you have an amazing opportunity, even if your earnings are not that high, to set up your habits right.”
He also recommended setting your contributions to automatically increase by 1% each year.
“You’ve got to invest 10% of your salary every year,” Sethi said. “And at the end of the year, increase that by 1%. Do this for as long as you can and you will be a multimillionaire.”
3. Learn how to spot red flags
You don’t need to be a professional to start growing your money through investing. And while a professional financial advisor may offer valuable guidance, choosing the wrong one could hurt more than it helps.
Self-made millionaire Tess Waresmith learned that lesson the hard way.
Before becoming the financial educator she is today, she tapped a financial advisor to help her grow the savings she stacked up working on a cruise ship after a friend told her she could be making her money work for her instead of “hoarding” it.
“With stock market investing, I was really afraid to do it wrong, so I hired a financial advisor, and they made a lot of really bad decisions on my behalf,” Waresmith previously told CNBC Make It.
Had she known better, Waresmith may have looked for a fee-only advisor who takes a flat fee as payment, rather than a cut of her earnings. Plus, the advisor encouraged her to buy into an annuity that was “better suited for people in their 50s. I was 26,” she said.
Unfortunately, this costly experience taught Waresmith to be aware of red flags when it comes to choosing a financial advisor and the products one may try to sell you.
“It’s tough to identify red flags if you don’t have basic knowledge of investing. And when I say basic knowledge, I mean reading one or two books or taking one course,” she said. “You don’t have to have a Ph.D. in investing or be an analyst, but I didn’t really see red flags, because I wouldn’t have even been able to recognize them back then.”
If an advisor isn’t being transparent with you about where your money is going, your money isn’t growing like you think it should or you’re unsure how and how much your advisor is getting paid, those are signals you may want to work with someone else.
