The latest edition of Oxfam's annual report, Inequality Inc., has been published and states: “Since 2020, the world's five richest people have doubled their wealth. In the same period, around 50% of the world's 100 million people have fallen into poverty.”
Most of us want to be rich, or at least richer. So how should you strive? Well, one thing many wealthy people have in common is that they invest in stocks. Let's take a closer look at the strategy and the surprisingly easy ways to make it happen.
Image source: Getty Images.
The richest person and the person who became even richer
To get you started, here are the five richest people and their recent profits (adjusted for inflation).
- Elon Musk CEO teslahis wealth soared to $245.5 billion in late 2023, an increase of 737% from March 2020.
- Bernard Arnault, chairman of the French luxury goods giant LVMH Moët Hennessy Louis Vuittonand his family saw their wealth increase 111% to $191.3 billion over the same period.
- Mr. Jeff Bezos, Amazonhis wealth increased by 24% to $167.4 billion.
- Founder Larry Ellison oracleassets grew 107% to $145.5 billion.
- Warren Buffett CEO berkshire hathawayhis wealth increased by 48% to $119.2 billion.
how did they do it? In most cases, this is due to rising stock prices. Founders and CEOs of large companies often have much of their net worth tied up in their company's stock, and as a company's market value increases, so does the value of its shareholders' holdings.
It's not just the 5 richest people or the 100 richest people who are increasing their wealth through investing in the stock market. Almost anyone can invest in stocks, and many, if not most, wealthy people do so. According to a recent article, wall street journal:
Americans own more stocks than ever before. According to a survey on consumer finance released this fall by the Federal Reserve, about 58% of U.S. households owned stocks in 2022. This is up from 53% in 2019 and marks the highest household stock ownership rate recorded in the triennial survey. This cohort includes families that hold individual stocks directly and those that hold stocks indirectly through funds, retirement accounts, and other managed accounts.
Why stocks?
It's hard to find a better path to wealth than long-term investing in stocks. Check out the table below from Wharton Business School Professor Jeremy Siegel showing returns for various asset classes from 1802 to his 2021.
|
asset class |
annual nominal return |
|---|---|
|
stock |
8.4% |
|
bond |
Five% |
|
invoice |
Four% |
|
Money |
2.1% |
|
USD |
1.4% |
Information source: long term stocksJeremy Siegel.
Stocks can outperform even in the short term. For example, Siegel found that over his 75 years from 1946 to 2021, stocks grew at an average annual rate of 11.3%, while long-term Treasuries grew at his 5.8%. The long-term average annual return of S&P500 It's about 10%.
How to start investing
So how can you you Want to join in the action? Well, if you participate in an employer-sponsored retirement plan such as a 401(k), you may already have stock investments. These typically offer a menu of funds to choose from, including funds that invest in stocks.No matter how much you've invested these days, consider investing more. The more you save, and the longer it takes you to grow, the more wealth you can build.
It's wise to take advantage of tax-advantaged retirement savings accounts, such as 401(k)s and IRAs. If her employer matches contributions to her 401(k), aim to contribute at least enough to maximize that match. Whether you have a 401(k) account or not, you can probably set up an IRA with a good broker and make regular contributions. With an IRA, you can invest in individual stocks, mutual funds, and exchange-traded funds (ETFs).
In addition to tax-advantaged retirement accounts, you can also open a tax-advantaged regular account with a brokerage firm and invest in stocks through it.
Most of us would make good money investing in stocks through an index fund that tracks a broad market index like the S&P 500. (In other words, they invest in roughly the same securities in a particular index and aim to achieve roughly the same returns.) To build a lot of wealth over the long term, all you need is a high-quality, low-fee index fund. enough.
If you're looking for higher-than-average returns, you may want to add growth stocks to your portfolio. They are tied to companies that are growing faster than average. However, not all of them work well, so spread your funds across multiple services. The Motley Fool's investment philosophy recommends purchasing stock in approximately 25 or more companies and aiming to hold the stock for at least five years.
Keep in mind that to get better at investing in individual stocks, you need to take the time to read and learn about stocks. Dividend stocks are also worth considering. You can regularly inject fresh cash into your account, allowing you to buy more stocks.
So while you and I may never become billionaires like Musk or Bezos, with years of diligent stock investing, we can accumulate a large nest egg that will serve us well in retirement. can.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool's board of directors. Selena Maranjian has held positions at Amazon, Berkshire Hathaway, and Oracle. The Motley Fool has positions in and recommends Amazon, Berkshire Hathaway, Oracle, and Tesla. The Motley Fool has a disclosure policy.
