Personal Finance

I'm 42 with a $21 million net worth — I gained $4 million in one month — is this sustainable?

Rich Duprey

Published: December 27, 2024 11:11 am

The stock market is the single best way for the average person to grow wealthy. No other asset class has outperformed investing in stocks over time. Gold, bonds, real estate, and oil have fallen short of beating equities.

Over the past 100 years, Deutsche Bank found that stocks beat out gold by 5.6% per year, housing prices by 6.6%, Treasuries by 6.8%, and oil by 8.4% per year. Moreover, only two decades have produced negative returns for stocks: the Great Depression of the 1930s when the market returned negative 0.5%, and the so-called “lost decade” of the 2000s, when a combination of the dot-com implosion, 9/11, and the financial and housing markets collapse sank the market, caused negative returns of 0.9%.

The past two years have been an incredible bull market. The S&P 500 returned 24% in 2023 and is up 26% as 2024 draws to a close. But don’t expect similar returns next year. The historic annual average return for the benchmark index is 10.2%. Although no one can predict when a bull market will end (or a bear market, for that matter), history shows it eventually returns to the mean.

This was brought to mind by a Redditor’s post on the r/fatFIRE subreddit as he finds himself with a $21 million net worth, which had risen by $4 million in just one month. While he achieved his wealth by hard work over a 20-year period and ultimately by selling a software company he started, the advice is the same for an investor of lesser means. It is a performance that is not sustainable and you should have a long-term mindset when it comes to investing.

24/7 Wall St. Key Points:

• Investing in stocks is one of the best ways for the average person to grow wealthy.
• Making regular contributions to your brokerage account and using the power of time and compound interest to generate fabulous returns will help ensure a comfortable retirement.
• Don’t expect to hit a home run every time you buy a stock, and don’t expect the good times to last forever. Being the tortoise instead of the hare will get you to your goals in better shape.
• Also: Take this quiz to see if you’re on track to retire (Sponsored)

Conditions are right for success

Although the old saying “it takes money to make money” has some validity, in today’s market where stock investing has been democratized, even small investors can grow their nest egg into considerable sums over time. But that’s the key: it takes time to achieve your goals. There are no shortcuts to generating lasting wealth.

The Federal Reserve says a record 54% of U.S. families own stock, either directly through a brokerage account or indirectly via a retirement plan or similar investment vehicle. As more barriers to buying stocks fall, the percentage of families owning stock will continue to rise. One of the more recent changes was Robinhood Markets (NASDAQ:HOOD) eliminating transaction fees on buying and selling stock, which caused other online brokerages to follow suit.

With all of your money being put to work right away, you can juice your portfolio’s returns and reach your goals quicker.

Aim for singles and doubles, not home runs

Yet slow and steady wins the race. Billionaire investing legend Peter Lynch took Fidelity Magellan from $20 million in assets under management (AUM) in 1977 to $14 billion in AUM in 1990 when he retired, a better than 29% annual average return.

He said you didn’t need to hit a home run with every swing, but rather you need just “one or two good stocks a decade.” Even if you strike out with a few, you will still come out ahead in the end.

To do so only requires making regular contributions to the market over time. Even if you took the “plain vanilla” approach to just buy an S&P 500 index fund and earn its historical rate of return minus inflation (about 7%), you can amass a fortune.

For example, investing $2,000 a month over 25 years would give you well over $1.5 million at the end. Adding in a couple of “ten-baggers,” as Lynch called them, or stocks that appreciated 10 times their initial investment, could find you sitting on generational wealth to pass on to your heirs.

Key takeaway

The best chance for getting rich today is by investing in stocks. Don’t try get-rich-quick schemes or day-trading. You’re more likely to lose all of your money than increase it. By dint of effort over many years, making regular contributions to the market, and using the power of time and compound interest, you can retire a millionaire and live the comfortable lifestyle you seek.