Millionaires tell beginning investors to put their money to work in an employer-sponsored retirement plan. What else do they recommend?
Beginning investors can choose from a variety of investment strategies, but Millionaires say a novice should focus on building up assets in an employer-sponsored retirement account.
Nearly three-fourths of Millionaires say the primary piece of advice they would give to a novice is contributing to a 401(k) retirement plan, according to a survey of more than 900 investors conducted by Millionaire Corner in March. Why do Millionaires recommend a 401(k) over other investment strategies?
A 401(k) is an employer-sponsored retirement plan that offers investors several advantages, particularly for individuals at the start of their careers. Assets held in a 401(k) are sheltered from income taxes, allowing investment gains to compound tax free and grow more rapidly than assets held in taxable accounts. Many 401(k) plans also offer a valuable benefit – matching contributions from an employer. The level of employer match varies from company to company, but any match is essentially free money that employees leave on the table when they choose not to participate in a 401(k). The sooner that beginning investors take advantage of these investment strategies, the longer their contributions and any employer matches will be able to compound tax free.
The majority of Millionaires – investors with a net worth of $1 million to $5 million not including primary residence – are retired and enjoy the benefit of hindsight. They have utilized successful investment strategies and are generally confident they will enjoy a comfortable retirement, according to a study completed by Millionaire Corner in the fourth quarter of 2012. At the same time, Millionaires reported a high level of concern for the financial futures of their children and grandchildren, whose careers have been impacted by the financial crisis and recession.
In the current economic environment, Millionaires are unlikely to employ investment strategies involving significant risk , and about one-fourth say they do not view their home as a stable financial asset. It’s no surprise that a large majority of Millionaires do not believe that it’s a good time to invest in real estate and only 16 percent would advise a beginning investor to buy a home while prices are low.
What other investment strategies would most Millionaires tell a beginning investor to avoid? Only 8 percent of Millionaires would advise a beginner to dabble in the stock market and only 3 percent would recommend a beginning investor save money in a CD or bank account. These investment strategies appear either too risky – an unpredictable stock market – or too conservative – low-yielding bank deposits – for middle-of- the- road Millionaires.