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If you think having a high net worth is a far-fetched dream, you're certainly not alone. In fact, a great majority of U.S. adults (74%) don't think they'll ever become a high-net-worth individual themselves — defined as having at least $1 million in investable, or liquid, assets — according to a recent Morning Consult survey commissioned by digital wealth management company Personal Capital.
But becoming a high-net-worth individual over the course of your lifetime involves more than making a good salary or having multiple income streams.
Retirement investing — something we all have access to — actually plays a major role in many millionaires' portfolios: For the high-net-worth individuals who use the Personal Capital dashboard, retirement accounts such as 401(k) plans and IRAs contributed 55% of their overall wealth.
"That's something I think high-net-worth investors have figured out," Michelle Brownstein, a certified financial planner and vice president of Personal Capital Private Client Group working with high-net-worth clients, tells Select. "The strategies needed to get rich are different from the ones required to stay rich and eventually earn on your money."
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Prioritize maxing out your retirement accounts
While most of the same survey respondents (59%) agreed it's important to maintain a diversified investment portfolio, fewer (46%) prioritized maxing out their retirement accounts.
This belief, however, can hold you back from making your money work for you and, ultimately, really growing your net worth over the long term. With a 401(k) retirement account, for example, your earnings automatically roll back into your plan and compound interest goes to work, allowing you to earn returns on your initial investment, plus your investment gains.
Retirement savers with a 401(k), 403(b), most 457 plans and the federal government's Thrift Savings Plan can contribute up to $20,500 in 2022, while 401(k) savers ages 50 and older can make an annual catch-up contribution of up to $6,500 in 2022, for a total contribution of $27,000.
Don't forget that your 401(k) contributions grow tax-deferred and also lower your taxable income. If you can't afford to max out your 401(k), at least make sure you are contributing enough to meet any employer match, otherwise that's essentially free money left on the table. As your income increases, you can also up your contribution amount.
Those with a traditional IRA or Roth IRA can contribute up to $6,000 total between their accounts, while IRA savers ages 50 and older can make an annual catch-up contribution of up to $1,000, for a total contribution of $7,000.
If your employer doesn't offer a 401(k), consider opening an IRA so saving for retirement doesn't get put on the back burner. Generally, traditional IRAs are most effective if you expect to be in a lower tax bracket when you retire, while Roth IRAs are best for those in a lower tax bracket today. You can find both traditional and Roth IRAs at big-name brokerages such as Charles Schwab and Fidelity, or via robo-advisors such as Betterment.
While you're working on boosting your retirement savings, make sure to track your personal net worth progress over time through tools such as Personal Capital and Mint, which let you link all your accounts in one place, including checking, savings, money markets, CDs and retirement accounts, as well as your debt accounts.
Fidelity Investments
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Minimum deposit and balance
Minimum deposit and balance requirements may vary depending on the investment vehicle selected. No minimum to open a Fidelity Go account, but minimum $10 balance for robo-advisor to start investing. Minimum $25,000 balance for Fidelity Personalized Planning & Advice
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Fees
Fees may vary depending on the investment vehicle selected. Zero commission fees for stock, ETF, options trades and some mutual funds; zero transaction fees for over 3,400 mutual funds; $0.65 per options contract. Fidelity Go is free for balances under $10,000 (after, $3 per month for balances between $10,000 and $49,999; 0.35% for balances over $50,000). Fidelity Personalized Planning & Advice has a 0.50% advisory fee
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Bonus
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Investment vehicles
Robo-advisor: Fidelity Go® and Fidelity® Personalized Planning & Advice IRA: Fidelity Investments Traditional, Roth and Rollover IRAs Brokerage and trading: Fidelity Investments Trading Other: Fidelity Investments 529 College Savings; Fidelity HSA®
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Investment options
Stocks, bonds, ETFs, mutual funds, CDs, options and fractional shares
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Educational resources
Extensive tools and industry-leading, in-depth research from 20-plus independent providers
Terms apply.
Betterment
On Betterment's secure site
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Minimum deposit and balance
Minimum deposit and balance requirements may vary depending on the investment vehicle selected. For Betterment Digital Investing, $0 minimum balance; Premium Investing requires a $100,000 minimum balance
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Fees
Fees may vary depending on the investment vehicle selected. For Betterment Digital Investing, 0.25% of your fund balance as an annual account fee; Premium Investing has a 0.40% annual fee
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Bonus
Up to one year of free management service with a qualifying deposit within 45 days of signup. Valid only for new individual investment accounts with Betterment LLC
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Investment vehicles
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Investment options
Stocks, bonds, ETFs and cash
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Educational resources
Betterment RetireGuide™ helps users plan for retirement
Terms apply.
Personal Capital
On Personal Capital's secure site
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Cost
App is free, but users have option to add investment management services for 0.89% of their money (for accounts under $1 million)
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Standout features
A budgeting app and investment tool that tracks both your spending and your wealth
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Categorizes your expenses
Yes, but users can modify
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Links to accounts
Yes, bank and credit cards, as well as IRAs, 401(k)s, mortgages and loans
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Availability
Offered in both the App Store (for iOS) and on Google Play (for Android)
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Security features
Data encryption, fraud protection and strong user authentication
Terms apply.
Mint
Information about Mint has been collected independently by Select and has not been reviewed or provided by Mint prior to publication.
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Cost
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Standout features
Shows income, expenses, savings goals, credit score, investments, net worth
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Categorizes your expenses
Yes, but users can modify
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Links to accounts
Yes, bank and credit cards
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Availability
Offered in both the App Store (for iOS) and on Google Play (for Android)
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Security features
Verisign scanning, multi-factor authentication and Touch ID mobile access
Terms apply.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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High-net-worth individuals have over half their wealth in IRAs and 401(k)s - CNBC
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