Editor’s Note: There was a major rise in the number of millionaires in 2021.
According to Alexander Green, these millionaires typically reached this level of wealth through one of 10 ways, which he outlines in today’s article. The first method is to start a successful business by fulfilling a need.
Alex recently discovered a little-known company that’s fulfilling a need for millions of people globally.
The company created a hand-held ultrasound device that can give doctors an instant look inside the body to diagnose a multitude of diseases.
It won a Blue Cross Blue Shield sponsored “Not Impossible Award” for creating new technology for the good of humanity. Fortune also featured it in its elite list of companies that will change the world.
– Madeline St.Clair, Assistant Managing Editor
There were a million more millionaires at the end of 2021 than there were a year earlier.
According to Spectrem Group, the premier market research and consulting firm in wealth management, the number of Americans with at least $1 million in investable assets climbed 10% to a record 14.6 million last year.
What made this possible?
The S&P 500 gained 27%, the Nasdaq rose 21%, and many popular stocks – especially technology firms – performed better still.
In addition, the real estate market was hot. Homeowners saw their property values increase.
Even crypto finished the year higher, although most traders were late to the party and are sitting on losses.
According to cryptocurrency investment firm 21Shares, at the $40,000 price level approximately 55% of Bitcoin holders are losing money. At $35,000, two-thirds are underwater.
(My advice? Take your licking now and get out before the real heartbreak begins.)
Americans without a seven-figure net worth saw big gains last year, too.
There were 33.1 million “Mass Affluent” households – those with a net worth between $100,000 and $1 million – at the end of 2021. That’s 800,000 more than a year earlier.
The rich got richer…
The number of households with a net worth of $5 million to $25 million jumped 10.4% to 1.8 million.
And so did the very rich… The number of households with $25 million-plus increased from 214,000 at the end of 2020 to 252,000 as of year-end 2021. That’s a 17.8% increase.
How did so many Americans become so wealthy?
Most people don’t really know. But billionaire money manager Ken Fisher does.
A few years ago, he wrote The Ten Roads to Riches.
In the book, he insists that – aside from a lucky break like winning the lottery or gaining a big inheritance – there are only 10 proven ways to get rich.
Here are the first nine:
- Start a successful business. Prime examples include Elon Musk, Jeff Bezos, Oprah Winfrey and Bill Gates. You’re never likely to do as well as these individuals, of course. But you can get plenty rich filling a need for a local product or service right in your own hometown. (Even if that means starting a plumbing business or putting braces on teenagers.)
- Become CEO of an existing firm and juice it. This was the method for Jack Welch, Steve Balmer and others. This requires a lot of years of experience – and a lot of loyalty to one company. But if you have the drive and ambition, the salary and option compensation often make it worth your while.
- Hitch your wagon to a star. This method involves tying your fortunes to a successful business visionary. Charlie Munger did it with Warren Buffett, Jeffrey Skoll with Jerry Yang, and Peter Chernin with Rupert Murdoch. This is tough though. You have to recognize a visionary early, offer him or her something of value, and stick around through good times and bad. Not easily done.
- Turn celebrity into wealth. Yes, celebrities are loaded. But unless you’re a world-class athlete, an amazing singer/songwriter or a truly gifted actor, you should probably give this one a pass.
- Marry well – really, really well. This seems shallow, I know, but a Wall Street Journal poll found that two-thirds of women said they’d be “very” or “extremely willing” to marry for money. Half of men surveyed said they’d marry for money, too. (One caveat: Expect a prenup.)
- Steal it, legally. Some people think plaintiff’s lawyers are crusading saviors. Others see them as bloodsucking leeches and extortion artists. (Fisher quotes the age-old Mexican curse: May your life be full of lawyers.) But if you can handle law school and pass the bar, this method is a distinct possibility.
- Use other people’s money. Managing other people’s money is how bankers, brokers, insurance companies, mutual fund managers and hedge fund managers make their millions. (Whether their clients get what they pay for is another story, one I cover in my book The Gone Fishin’ Portfolio.)
- Invent an endless future revenue stream. In this scenario, you create something – a book, a movie, a Broadway play – and find a way for it to create long-term royalties. This, admittedly, is a long shot. If you’re going to try this path, says Fisher, “think lunch boxes.” Products that end up on lunch boxes – Spider-Man, Star Wars, etc. – are really big moneymakers.
- Monetize unrealized real estate wealth. Millions of Americans have gotten rich in real estate. And by borrowing against it. But Fisher says skip the idea of flipping houses and condos – the transaction costs alone will kill you – and concentrate on good properties in desirable areas with predictable cash flows.
What is the 10th way to become wealthy?
It is the best and most predictable way, with the highest probability of success.
It is the path followed by the vast majority of all those new millionaires.
I’ll cover that road – what I call “the main highway” – in my next column.