Frugality, not an IPO, makes millionaires


It seems the only way to become a millionaire nowadays is to get in on the ground floor of a, answer trivia questions from a game-show host, or out-connive your island mates to claim a seven-figure prize.

Of course, that's not true. Many financial advisers say most of their millionaire clients still tend to be those who earned wealth the old-fashioned, some might say boring, way:

They regularly invested, sometimes small amounts of money, in the stock market over many years and lived below their means.

"Slow and steady wins the race. The tortoise is right," said Kevin Condon, a financial planner with Baltimore-Washington Financial Advisors in Ellicott City. "If they keep their head down, when they look up, all of a sudden they have a big fat net worth and their retirement will be very lush. That's very common."

As of last year, 7.2 million U.S. households had a net worth of $1 million or more, excluding primary residences, according to the investment research firm Spectrem Group in New York. That's more than twice the number of millionaire households in 1994.

If the healthy economy and stock market continue, millions more may join the millionaire club. Spectrem forecasts 14.9 millionaire households by 2004.

Sure, a million bucks isn't what it used to be, but it's still a milestone many wouldn't mind hitting.

"If you talk to most people and ask them if 1 million bucks or being a millionaire is still meaningful, most people will say, 'Yes,'" said Charles Carlson, author of "Eight Steps to Seven Figures."

Carlson has talked to people. For his book published this year, he interviewed 170 everyday millionaire investors to discover how they built their wealth.

Who became a millionaire?

Men overwhelming more than women, reflecting the fact that men are still higher paid and the long-term effect of women entering the work force in droves in the 1970s and 1980s has yet to show up in portfolios, Carlson said.

On average, Carlson found, the everyday millionaire was 60 years old, married for 32 years and had just under two children. One in five had been divorced, compared with the national average of one in two. The millionaires on average held three jobs in their careers (vs. 13 for the typical worker) and have been at their present jobs for 19 years.

They are long-time investors who buy and hold stocks. On average, they had been investing for 30 years and owned 44 stocks. Seventy-five percent held their stocks for at least five years. They leaned toward quality growth stocks and avoided complex investments.

They made mistakes, too. The majority admitted to acting on hot tips that often didn't pan out or to trading too often in their early investing years.

And they live below their means, sometimes frugally. "Most of these people looked at their frugality as a badge of honor," Carlson said.

That can be a hard habit to break, too, said Condon, who sometimes tries to persuade these millionaires to loosen purse strings. "They can't imagine spending money at a higher rate," he said. "They laugh at the fact that they go with their friends, who also have $1 million or $2 million, to the Shoney's with coupons."

In many ways, Jim and Marie are typical everyday millionaires. The couple, who didn't want their last name used, retired within the past year and a half to a home on the Eastern Shore. Their net worth: $2.6 million.

"We sort of stumbled our way through this. We weren't looking at the big picture. The big picture for us was trying to get the next paycheck or through the next six months to make sure we had enough for the big insurance payment coming," said Marie, 63.

The couple married 38 years ago, when Jim was the only breadwinner and earning $400 a month. They have one son. Up until the mid-1970s, the couple lived paycheck to paycheck.

"We're the Frugals," said Jim, 66. Vacation was camping at Assateague Island. Jim does the repair work around the house and on the family's cars.

Jim worked 42 years for an information services company, eventually earning around $90,000 a year. Marie worked 26 years for a nonprofit that does research, with her top salary at $58,000.

Both maxxed out on their employers' retirement savings plans, and their accounts combined grew to $1 million. About a decade ago, they inherited a house and $200,000 in investments. Since then, they sold the house, invested the proceeds, and have doubled the entire inheritance.

Their best investment: a Vanguard Growth Index Fund that nearly quadrupled over six years.

Their worst: a $16,000 loss in one month after a young broker persuaded them to invest in a series of puts and calls. "It was something called the 'Condor Spread' that he had going on, and I didn't understand. I vowed I would never do anything I didn't understand anymore," Jim said.

For those interested in building wealth over time, Carlson suggests following these steps of everyday millionaires:

Get started investing on a regular basis, even if it's only $50 a month, Carlson said. Many millionaires put their investing on autopilot, such as payroll deductions into a 401(k), he said.

"Maximize what Uncle Sam gives you," he said. That includes holding onto investments at least a year to get the lower capital gains tax rate or putting dollars into tax-favored accounts such as a 401(k) or Individual Retirement Accounts.

Buy a diverse group of stocks and stock mutual funds. When investing 15 or 20 years, stocks offer the best potential for growth, Carlson said. Investors should shift money into bonds later when they want to preserve wealth, he said.

Understand that life-changing events, such as divorce, children and job-hopping, have an economic impact, Carlson said. Those with stable lives a have more predictable cash flow, which allows them to regularly invest, he said.

Job hoppers, for instance, may lose valuable investing time waiting to be eligible for a 401(k) or may postpone investing until they feel secure in their new position.

Carlson admits that the strategy isn't as exciting as striking it rich overnight in an initial public offering. "[But] this is a way that truly anybody can do it. It's kind of old school in this day and age when everything is fast, fast, fast."

You can contact Eileen Ambrose at 410-332-6984 or by e-mail at

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