The latest edition of Oxfam's annual Inequality Inc. report is out, and it states: "Since 2020, the richest five men in the world have doubled their fortunes. During the same period, almost five billion people globally have become poorer."
Most of us would love to be rich, or at least to grow richer, so how should we try to do so? Well, one common denominator among many wealthy folks is simply this: investing in stocks. Let's take a closer look at that strategy -- and some amazingly straightforward ways to do it.
Image source: Getty Images.
The richest, who got richer
First, though, here are those five richest people and their recent gains (which account for inflation):
- Elon Musk, CEO of Tesla, saw his wealth surge to $245.5 billion in late 2023, up 737% from March 2020.
- Bernard Arnault, chairman of French luxury goods giant LVMH Moet Hennessy Louis Vuitton, and his family saw their wealth pop 111% over the same period to $191.3 billion.
- Jeff Bezos, founder of Amazon, saw his wealth jump 24% to $167.4 billion.
- Larry Ellison, founder of Oracle, experienced a wealth increase of 107% to $145.5 billion.
- Warren Buffett, CEO of Berkshire Hathaway, saw his wealth rise 48% to $119.2 billion.
How did they do it? In most cases, it's by stock price appreciation. Founders and CEOs of big companies often have much of their net worth tied up in company stock, and when the company's market value grows, so does the value of shareholders' holdings.
It's not just the five richest or 100 richest people who are boosting their wealth via stock market investing. Just about anyone can invest in stocks, and many, if not most, wealthy people do so. Per a recent article in The Wall Street Journal:
The share of Americans who own stocks has never been so high. About 58% of U.S. households owned stocks in 2022, according to the Federal Reserve's survey of consumer finances released this fall. That is up from 53% in 2019 and marks the highest household stock-ownership rate recorded in the triennial survey. The cohort includes families holding individual shares directly and those owning stocks indirectly through funds, retirement accounts or other managed accounts.
Why stocks?
It's hard to find a better road to riches than long-term investing in stocks. Check out the table below, showing the returns of various asset classes between 1802 and 2021, per Wharton Business School professor Jeremy Siegel:
|
Asset Class |
Annualized Nominal Return |
|---|---|
|
Stocks |
8.4% |
|
Bonds |
5% |
|
Bills |
4% |
|
Gold |
2.1% |
|
U.S. dollar |
1.4% |
Data source: Stocks for the Long Run, Jeremy Siegel.
Stocks outperform over shorter periods, too. For example, Siegel found that over the 75 years between 1946 and 2021, stocks grew at an average annual rate of 11.3%, versus 5.8% for long-term government bonds. The long-term annual average return of the S&P 500 is around 10%.
How to start investing
So how can you get in on the action? Well, you might already be investing in stocks if you're participating in an employer-sponsored retirement plan such as a 401(k). Those will typically offer a menu of funds to choose from, including funds that invest in stocks. However much you're investing these days, consider investing more. The more you sock away and the longer it has to grow, the more wealth you can build.
It's smart to make good use of tax-advantaged retirement savings accounts such as 401(k)s and IRAs. If your employer matches contributions to a 401(k), aim to contribute at least enough to max out that match. Whether you have a 401(k) account or not, you can probably set up an IRA with a good brokerage -- and contribute to it regularly. In an IRA, you can invest in individual stocks and/or in mutual funds and exchange-traded funds (ETFs).
Besides tax-advantaged retirement accounts, you can also open a regular, taxable account with a brokerage, and invest in stocks through it.
Most of us would be well-served investing in stocks via index funds that track broad market indices like the S&P 500. (In other words, they invest in pretty much the same securities of a particular index, aiming to deliver pretty much the same return.) Good, low-fee index funds can be all that you need to build significant wealth over time.
If you want to aim for higher-than-average returns, you might add some growth stocks to your mix. They're tied to companies that are growing faster than average. Not all will perform well, though, so spread your dollars across a bunch of them. The Motley Fool's investing philosophy suggests buying into around 25 or more companies and aiming to hang on to your shares for at least five years.
Note that to be good at investing in individual stocks, you'll want to spend some time reading and learning more about stocks. Dividend-paying stocks are also well worth considering, as they can regularly infuse your accounts with fresh cash -- that you can spend buying more shares of stock!
So while you and I might never become billionaires like Musk or Bezos, if we diligently invest in stocks over many years, we can amass hefty nest eggs that can serve us well in retirement.
