Experts reveal the most boring (but effective) ways to become a millionaire

While investing in cryptocurrencies or meme stocks can be exciting, it can be a risky strategy.

These investments may offer the opportunity to get rich quick, but experts say they’re often the most boring strategies that pay off in the long run.

Playing it safe and sticking to the basics can be the best way to build wealth over time. Money.com reported.

In fact, by combining three boring but highly effective strategies, you can become a millionaire in 30 years, investing as little as $500 per month.

We’ll go through the details below. In short, stick to sensible funds tied to the S&P 500, invest the same amount each month, don’t try to time when to buy and sell, and take advantage of the magic of compound interest.

Index funds

According to Money.com, the first strategy is to invest in index funds.

Picking stocks can be fun, but timing the market is extremely challenging, even for experts.

In the first half of 2024, 81.8 percent of actively managed funds did not outperform the S&P 500 index, according to an analysis of Morningstar research by The Wall Street Journal.

According to the magazine, nearly 73 percent of respondents failed to beat the index over the past decade.

The S&P 500 has delivered an average annual return of 10.52 percent over the past 30 years.

“When you pick stocks, you’re demonstrating that you have some kind of knowledge that the rest of the market hasn’t factored into the price of an investment,” Brenton Harrison, financial adviser and founder of advisory firm New Money, New Problems, told Money.com.

In contrast, when you invest in index funds, you don’t have to choose.

An index fund is an investment fund that tracks the performance of a market index, such as the S&P 500 or the Nasdaq Composite, by holding the same stocks or a representative portion thereof.

“These funds allow you to diversify your investments, increasing the likelihood that if one sector of the index struggles, another will recover,” according to Money.com.

“That’s the power of diversification. Investing in index funds offers everything in one place.”

Dollar cost average

Another strategy is so-called ‘dollar cost averaging’.

While it sounds complicated, you’re already using this long-term wealth-building strategy if you contribute to a workplace 401(K) retirement plan.

With dollar-cost averaging, you invest a certain amount of money at regular intervals, regardless of what is happening in the market at that time.

The ideal investment strategy is to buy when prices are low and sell when they are high.

But again, timing the market is extremely difficult and risky.

By investing at regular intervals, some of that risk is removed.

A Morningstar analysis last year found that buy-and-hold portfolios outperformed market-timing portfolios by 10 percent over 21 years.

“Dollar-cost averaging is one of the best financial tools anyone can use because it removes human error from the investing process,” Harrison said.

‘Rather than feeling like you can time the market (which we don’t), it gives you the best chance of getting the best price for your investment.’

Compound interest

Taking advantage of compound interest is also key to building wealth.

Simply put, compound interest is the interest you earn on interest.

For example, if you invest $100 and it earns 5 percent interest each year, you will have $105 at the end of the first year. This larger amount will then earn 5 percent interest, bringing your total to $110.25 at the end of the second year.

Over the years, this amount will continue to increase, because you receive interest on an increasingly larger balance.

According to Money.com, you can take advantage of this compounding by setting up a dividend reinvestment plan.

This is abbreviated as DRIP and means that all dividends you receive from shares or funds you own are automatically reinvested.

“Reinvesting dividends is an easy way to grow something,” Harrison said, adding that a DRIP increases the power of your account to grow.

For example, a $100,000 investment made in 1990 in a fund tracking the S&P 500 would have grown to more than $2.1 million by the end of 2022 if dividends were reinvested, according to Charles Schwab.

Excluding the dividend reinvestment, the same investment would have only grown to $1.1 million, just over half, the financial services company found.

Three boring strategies combined

According to Money.com, when combined, these three strategies can produce remarkable results.

Suppose you invest $500 each month in an index fund with a 10 percent compound annual growth rate, and that fund pays a dividend every quarter.

According to a calculator from the U.S. Securities and Exchange Commission, you have accumulated more than $1 million in 30 years.