Infographic: How to Become a 401(k) Millionaire
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Here’s How to Become a 401(k) Millionaire

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Here’s How to Become a 401(k) Millionaire

There’s nothing more definitive in the journey to financial freedom than hitting the $1 million mark in retirement savings.

A nest egg like that is a near-guarantee that you could surmount any curveball the world throws at you, whether it is an unexpected family emergency or anything else.

While $1 million certainly sounds like a lofty milestone to many, it’s actually quite a common achievement:

  • Millionaire households in the U.S.: 11.3 million (8.95%)
  • Total households in the U.S.: 126.2 million

And contrary to popular belief, to become a 401(k) millionaire, you don’t need to strike it rich with a lucky stock pick, or use a crystal ball to forecast the future of the market.

Your best bet is to simply focus only on the factors you can control.

What You Can Control

Today’s infographic is from Tony Robbins, and it covers key points from his #1 Best Selling book Unshakeable: Your Financial Freedom Playbook, which is now available on paperback.

It shows that the biggest winners in the financial game know that they can’t predict the future, and instead titans like Warren Buffett or Jack Bogle focus intently on the factors they can control, knowing that with the right approach they’ll thrive in almost any market.

What are these crucial factors?

FactorDescription
TimeThe force of compound interest is more powerful over longer periods of time.
DisciplineStaying calm and focused on the long term during periods of turmoil is key.
DiversificationProper asset allocation and frequent re-balancing can position you to weather any storm.
ExpensesExpenses and taxes are silent killers, and must be minimized strategically.

By diligently working to take control of these four factors, your odds of attaining financial freedom are extremely high. Here is each factor in more depth.

1. Time

The power of compound interest is extraordinary, making time your best friend when it comes to building a battle chest of retirement savings.

The current maximum contribution limit for 401(k)s is $18,500 per year, not including what is matched by your employer. If you maxed out on contributions and started investing early, you can hit $1 million before retirement even in sub-optimal market conditions:

Starting ageRequired returns for $1 million at age 65
302.20%
353.45%
405.40%
458.55%
5014.50%

Time can make up for a lack of investing acumen. Wait until later, and things get very difficult – by age 50, you need market beating returns!

2. Discipline

If you’re taking advantage of the power of compound interest over a long period of time, whether that is 20, 30, or 40 years, it is inevitable that there will be bumps in the road:

  • Stock market corrections happen once a year, on average
  • Bear markets happen once in every 3-5 years, on average
  • Bear markets vary in length, but on average last one year

Through decades of investing, the fact is you are going to see bear markets – it is how you handle them that counts.

Even when it’s the most tempting to sell, remember these facts:

  • Bear markets become bull markets
  • The first 12 months of a new bull market can see crucial market gains
  • Nobody can successfully time the market – not even the experts

In other words, having the discipline to hold through the turbulence can be the difference maker – and a key factor you can control in your journey to becoming a 401(k) millionaire.

3. Diversification

Another factor you control is portfolio diversification, and here are four ways diversification can minimize risk:

Diversification TechniqueExamples
AssetsStocks, bonds, and alternative assets like real estate or gold.
SectorsConsumer goods, tech, energy, financials, etc.
MarketsDomestic, international, emerging markets
TimeAdd to investments regularly, because there is never a “right” time to buy

A properly designed portfolio can weather any storm, and re-balancing it on a regular basis will force you to sell assets at market highs, while buying at low points.

4. Expenses

The fees on your 401(k) statement might not seem like much, but even 1% or 2% can make a big difference over the long term.

For example: the value of $1 compounding for 50 years at 5% will be worth $11.50, but if it averages 7% it will be worth $29.50. That’s almost three times more!

Expenses, both seen and hidden, can be a silent killer any portfolio, so keeping them to a necessary minimum can help you get to the promised land.

A Final Word

If becoming a 401(k) millionaire was easy, everyone could do it.

But to be successful, you need to take control over factors like time, diversification, discipline, and costs – ideally with a qualified and experienced financial advisor and partner. Then, you need to stick to the plan and let the market do its work.

Investing is a game of inches. If your returns improve by, say, 2 or 3 percentage points a year, the cumulative impact over decades is astounding, thanks to the power of compounding.

– Tony Robbins

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Investor Education

A Visual Guide to Stock Splits

If companies want their stock price to rise, why would they want to split it, effectively lowering the price? This infographic explains why.

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A Visual Guide to Stock Splits

Imagine a shop window containing large pieces of cheese.

If the value of that cheese rises over time, the price may move beyond what the majority of people are willing to pay. This presents a problem as the store wants to continue selling cheese, and people still want to eat it.

The obvious solution is to divide the cheese into smaller pieces. That way, more people can once again afford to buy portions of it, and those who want more can simply buy more of the smaller pieces.

cheese and stock splits

The total volume of the cheese is still worth the same amount, it’s only the portion size that changed. As the infographic above by StocksToTrade demonstrates, the same concept applies to stock splits.

Like wheels of cheese, stocks can be split a number of different ways. Some of the more common splits are 2-for-1, 3-for-1, and 3-for-2. Less common splits can take place as well, such as when Apple increased its outstanding shares by a 7-to-1 ratio in 2014.

Why Companies Do Stock Splits

Of course, stocks aren’t cheese.

The real world of the financial markets, driven by macro trends and animal spirits, is more complex than items in a shop window.

If companies want their stock price to continue rising, why would they want to split it, effectively lowering the price? Here are a some specific reasons why:

1. Liquidity
As our cheese example illustrated, stocks can sometimes see price appreciation to the point where they are no longer accessible to a wide range of investors. Splitting the stock (i.e. making an individual share cheaper) is an effective way of increasing the total number of investors who can purchase shares.

2. Sending a Message
In many cases, announcing a stock split is a harbinger of prosperity for a company. Nasdaq found that companies that split their stock outperformed the market. This is likely due to investor excitement and the fact that companies often split their stock as they approach periods of growth.

3. Reducing Capital Costs
Stocks with prices that are too high have spreads that are wider than similar stocks. When spreads—the difference between the bid and offer—are too large, they eats into investor returns.

4. Meeting Index Criteria
There are specific instances when a company may want to adjust its share price to meet certain index requirements.

One example is the Dow Jones Industrial Average (DJIA), the well-known 30-stock benchmark. The Dow is considered a price-weighted index, which means that the higher a company’s stock price, the more weight and influence it has within the index. Shortly after Apple conducted its 7-to-1 stock split in 2014, dropping the share price from about $650 to $90, the company was added to the DJIA.

On the flip side, a company might decide to pursue a reverse stock split. This takes the existing amount of shares held by investors and replaces them with fewer shares at a higher price. Aside from the general stigma associated with a lower share price, companies need to keep the price above a certain threshold or face the possibility of being delisted from an exchange.

Stock Splits Happen, but are not Inevitable

Alphabet will become the most recent high profile company to split their stock in early 2022. The company’s 20-for-1 stock split aims to make the share price more accessible to retail investors dropping the price from approximately $2,750 to $140 per share.

Conversely, Berkshire Hathaway has famously never split its stock. As a result, a single share of BRK.A is worth over $470,000. Berkshire Hathaway’s legendary founder, Warren Buffett, reasons that splitting the stock would run counter to his buy-and-hold investment philosophy.

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Investor Education

Visualizing The World’s Largest Sovereign Wealth Funds

To date, only two countries have sovereign wealth funds worth over $1 trillion. Learn more about them in this infographic.

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Visualized: The World’s Largest Sovereign Wealth Funds

Did you know that some of the world’s largest investment funds are owned by national governments?

Known as sovereign wealth funds (SWF), these vehicles are often established with seed money that is generated by government-owned industries. If managed responsibly and given a long enough timeframe, an SWF can accumulate an enormous amount of assets.

In this infographic, we’ve detailed the world’s 10 largest SWFs, along with the largest mutual fund and ETF for context.

The Big Picture

Data collected from SWFI in October 2021 ranks Norway’s Government Pension Fund Global (also known as the Norwegian Oil Fund) as the world’s largest SWF.

The world’s 10 largest sovereign wealth funds (with fund size benchmarks) are listed below:

CountryFund NameFund TypeAssets Under Management (AUM) 
🇳🇴 Norway Government Pension Fund Global SWF$1.3 trillion
🇺🇸 U.S.Vanguard Total Stock Market Index FundMutual fund$1.3 trillion
🇨🇳 ChinaChina Investment CorporationSWF$1.2 trillion
🇰🇼 Kuwait Kuwait Investment Authority SWF$693 billion
🇦🇪 United Arab EmiratesAbu Dhabi Investment Authority SWF$649 billion
🇭🇰 Hong Kong SARHong Kong Monetary Authority Investment PortfolioSWF$581 billion
🇸🇬 SingaporeGovernment of Singapore Investment CorporationSWF$545 billion
🇸🇬 SingaporeTemasek SWF$484 billion
🇨🇳 ChinaNational Council for Social Security Fund SWF$447 billion
🇸🇦 Saudi ArabiaPublic Investment Fund of Saudi Arabia SWF$430 billion
🇺🇸 U.S.State Street SPDR S&P 500 ETF TrustETF$391 billion
🇦🇪 United Arab EmiratesInvestment Corporation of DubaiSWF$302 billion 

SWF AUM gathered on 10/08/2021. VTSAX and SPY AUM as of 09/30/2021.

So far, just two SWFs have surpassed the $1 trillion milestone. To put this in perspective, consider that the world’s largest mutual fund, the Vanguard Total Stock Market Index Fund (VTSAX), is a similar size, investing in U.S. large-, mid-, and small-cap equities.

The Trillion Dollar Club

The world’s two largest sovereign wealth funds have a combined $2.5 trillion in assets. Here’s a closer look at their underlying portfolios.

1. Government Pension Fund Global – $1.3 Trillion (Norway)

Norway’s SWF was established after the country discovered oil in the North Sea. The fund invests the revenue coming from this sector to safeguard the future of the national economy. Here’s a breakdown of its investments.

Asset Class% of Total AssetsCountry DiversificationNumber of Securities
Public Equities72.8%69 countries9,123 companies
Fixed income24.7%45 countries1,245 bonds
Real estate2.5%14 countries867 properties

As of 12/31/2020

Real estate may be a small part of the portfolio, but it’s an important component for diversification (real estate is less correlated to the stock market) and generating income. Here are some U.S. office towers that the fund has an ownership stake in.

AddressOwnership Stake
601 Lexington Avenue, New York, NY 45.0%
475 Fifth Avenue, New York, NY49.9%
33 Arch Street, Boston, MA49.9%
100 First Street, San Francisco, CA44.0%

As of 12/31/2020

Overall, the fund has investments in 462 properties in the U.S. for a total value of $14.9 billion.

2. China Investment Corporation (CIC) – $1.2 Trillion (China)

The CIC is the largest of several Chinese SWFs, and was established to diversify the country’s foreign exchange holdings.

Compared to the Norwegian fund, the CIC invests in a greater variety of alternatives. This includes real estate, of course, but also private equity, private credit, and hedge funds.

Asset Class% of Total Assets
Public equities38%
Fixed income17%
Alternative assets43%
Cash2%

As of 12/31/2020

A primary focus of the CIC has been to increase its exposure to American infrastructure and manufacturing. By the end of 2020, 57% of the fund was invested in the United States.

“According to our estimate, the United States needs at least $8 trillion in infrastructure investments. There’s not sufficient capital from the U.S. government or private sector. It has to rely on foreign investments.”
– Ding Xuedong, Chairman, China Investment Corporation

This has drawn suspicion from U.S. regulators given the geopolitical tensions between the two countries. For further reading on the topic, consider this 2017 paper by the United States-China Economic and Security Review Commission.

Preparing for a Future Without Oil

Many of the countries associated with these SWFs are known for their robust fossil fuel industries. This includes Middle Eastern nations like Kuwait, Saudi Arabia, and the United Arab Emirates.

Oil has been an incredible source of wealth for these countries, but it’s unlikely to last forever. Some analysts believe that we could even see peak oil demand before 2030—though this doesn’t mean that oil will stop being an important resource.

Regardless, oil-producing countries are looking to hedge their reliance on fossil fuels. Their SWFs play an important role by taking oil revenue and investing it to generate returns and/or bolster other sectors of the economy.

An example of this is Saudi Arabia’s Public Investment Fund (PIF), which supports the country’s Vision 2030 framework by investing in clean energy and other promising sectors.

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