Beyond Crypto: This is the secret sauce for retiring a millionaire

Beyond Crypto: This is the secret sauce for retiring a millionaire
Beyond Crypto: This is the secret sauce for retiring a millionaire

While many agree that the stock market has historically been the best tool for building long-term wealth, cryptocurrencies have taken that title in recent years. Bitcoin and Ethereumhas, for example, given a five-year return of 700% and 310%, respectively, compared with S&P 500its total return of only 73% during that time.

But with cryptocurrencies are completely hammered In recent months, now is a good time to reconsider your investment philosophy and the path you want to take to achieve adequate financial returns. And if you want to retire a millionaire, a valid argument can be made that avoiding crypto altogether may be the right thing to do now.

A couple is sitting across the table from a financial planner.

Image Source: Getty Images.

Do not rush for the shiny object

With stories of individuals becoming millionaires virtually overnight by trading digital assets, fear of missing out can undoubtedly be the feeling many non-crypto investors have experienced. It is human nature. We see that others have incredible success in doing something, and we will immediately copy that behavior.

The problem, however, is that it is completely contrary to what a rational person should do. What really matters is how much a person consistently saves, the time leading up to retirement and their risk tolerance. Building a financial plan that helps one achieve personal goals is the ultimate goal.

While some cryptocurrencies have crushed stocks in recent years, they are not the right investment for everyone. First, digital assets are ridiculously volatile with daily movements greater than 10% a normal occurrence. And because the sector as a whole has just started its teens – Bitcoin was launched in January 2009 – the potential range of outcomes for the asset class in the very beginning is extremely wide. This is too much uncertainty for most people to endure.

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Furthermore, the lack of regulation with cryptocurrencies, which is not a problem in the traditional financial system, increases the risk level. There are countless stories of scams. And even with legitimate projects, the total risk involved with different crypto companies is simply unknown. We are seeing this play out right now, with the large crypto hedge fund Three Arrows Capital applying for bankruptcy protection and Voyager Digital, a large crypto brokerage house, suspending all trading due to market conditions.

It can certainly be tempting to buy into the hype with cryptocurrencies, especially given the monster returns some speculators have achieved by buying digital assets, but a safer approach is to just focus on owning stocks in the long run.

Do this instead

It’s really no secret to retire a millionaire. It’s actually quite simple. People should start investing at a young age and let compounding take care of the rest.

But what is it the right way to invest? If you have time to study and research different companies, actively choosing stocks can be a viable option. Blue-chip stocks such as apple, Berkshire Hathawayand Coca Cola are good companies to help build a solid foundation for well-diversified portfolios. On the other hand, if you only want to use a passive approach, buy exchange traded funds such as Vanguard S&P 500 ETF or Vanguard High-Dividend ETF is also a good idea.

Based on the S&P 500’s average annual return of about 10% since 1900, someone who invests as little as $ 200 per month from the age of 25 will have a nest egg of $ 1 million at age 65. Of course, expanding the time horizon, investing more money, and achieving higher returns will result in a larger pension fund.

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Some important things to keep in mind are that investors should expect big downsides, such as the dramatic one we are experiencing at the moment. Volatility is the price of achieving success in the stock market. Also be involved in the long term, ideally targeted returns over several decades.

With this mindset, you are well on your way to becoming a millionaire. And the best part is that it can be done without owning any cryptocurrencies.

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