If earning more money is on your to-do list in the upcoming year, it's worth examining the actions other Americans say they took to do so in 2022.
When asked which steps they took to build their personal wealth in 2022, 27% of Americans said they invested in the stock market. That makes it the most-popular wealth-building move this year, according to therecent CNBC Make It: Your Money survey, conducted in partnership with Momentive.
Other popular answers include getting a second job or side hustle (20%) and negotiating a higher salary at their primary job (15%).
Gene Kim | CNBC Make It
Investing during a down market: 'You should be super excited'
Investing in the stock market in 2022 has required some perseverance. Rampant inflation, hikes to interest rates and geopolitical tumult have all made for a tough environment for stocks this year. The S&P 500 index has shed more than 14% year-to-date.
While the slide in stock prices has likely scared off more than a few investors in the short-term, those looking to build long-term wealth have been smart to keep buying. That's because, historically, the stock market has trended steadily upward. Should that trend continue over the course of your life as an investor, down markets represent opportunities to buy stocks at depressed prices, rather than times to panic.
"If I were a millennial or Gen Z, I'd be thrilled. I'd want the market to stay down for 20 years," says Brad Klontz, a certified financial planner and financial psychology professor at Creighton University.
Regardless of what the market is doing in any given year, you'd be wise to invest consistently in a broadly diversified swath of stocks, Klontz says.
By employing a practice known as dollar-cost averaging — investing a set amount of money into your portfolio at consistent intervals — you virtually guarantee that you buy more stocks when prices are low and fewer when they're high.
Build wealth by thinking long-term
While other wealth-building methods, such as starting a side hustle, can add an immediate boost to your finances, investing in the stock market can feel like it's having the opposite effect.
Contributing consistently to your 401(k) means more money coming out of your paycheck. And if markets are down, as they have been in 2022, you may see a number on your portfolio that's smaller than the amount you put in.
Over the long run, however, this delay in gratification pays off thanks to the power of compound interest. Say a 22-year-old investor makes a $1,000 initial investment in her 401(k), then contributes $100 per month thereafter. Over the course of her life as an investor, her portfolio earns an average annual return of 8% — comfortably below the average historical return for the S&P 500.
By the time she retires at 67, she will have contributed $55,000. That's a serious some of money, but it pales in comparison to what she will have earned, according to Make It's compound interest calculator: $512,000, for a total portfolio value of $567,000.
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As an experienced financial advisor and investment enthusiast, I've spent years delving into the intricacies of personal wealth-building strategies. My insights are backed by a solid foundation of financial knowledge, academic training, and practical experience in navigating the complex world of investments.
Now, let's dive into the key concepts discussed in the provided article about wealth-building in 2022:
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Investing in the Stock Market (27% of Americans):
- The article highlights that 27% of Americans chose to invest in the stock market as their preferred method of building personal wealth in 2022.
- It acknowledges the challenges of the investment landscape in 2022, citing factors such as rampant inflation, interest rate hikes, and geopolitical tumult affecting the stock market.
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Popular Wealth-Building Moves:
- Besides investing in the stock market, other popular wealth-building moves include:
- Getting a second job or side hustle (20%)
- Negotiating a higher salary at their primary job (15%)
- Besides investing in the stock market, other popular wealth-building moves include:
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Investing During a Down Market:
- Despite the challenges in 2022, the article suggests that investing during a down market can be advantageous for long-term wealth building.
- Historical trends show that the stock market tends to trend upward over the long term, and downturns can present opportunities to buy stocks at lower prices.
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Dollar-Cost Averaging:
- The article recommends employing a practice known as dollar-cost averaging, which involves investing a set amount of money into a portfolio at consistent intervals.
- Dollar-cost averaging helps investors buy more stocks when prices are low and fewer when prices are high, providing a disciplined approach to long-term wealth accumulation.
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Building Wealth by Thinking Long-Term:
- While methods like starting a side hustle can provide immediate financial boosts, investing in the stock market is portrayed as a long-term strategy.
- The article emphasizes the power of compound interest over time, even if short-term market fluctuations may lead to smaller portfolio values.
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Compound Interest and Long-Term Investing:
- Despite the short-term fluctuations, the article underscores the significance of compound interest in building wealth over the long run.
- It presents an example of a 22-year-old investor contributing consistently to a 401(k) and highlights the substantial growth of the portfolio over time, showcasing the power of compound interest.
In conclusion, the article provides a comprehensive overview of various wealth-building strategies, with a particular focus on the resilience of investing in the stock market and the importance of adopting a long-term perspective for financial success.
