If earning more money is on your to-do list in the upcoming year, it's worth examining the actions other Americans say they took to do so in 2022.
When asked which steps they took to build their personal wealth in 2022, 27% of Americans said they invested in the stock market. That makes it the most-popular wealth-building move this year, according to the recent CNBC Make It: Your Money survey, conducted in partnership with Momentive.
Other popular answers include getting a second job or side hustle (20%) and negotiating a higher salary at their primary job (15%).
Investing in the stock market in 2022 has required some perseverance. Rampant inflation, hikes to interest rates and geopolitical tumult have all made for a tough environment for stocks this year. The S&P 500 index has shed more than 14% year-to-date.
While the slide in stock prices has likely scared off more than a few investors in the short-term, those looking to build long-term wealth have been smart to keep buying. That's because, historically, the stock market has trended steadily upward. Should that trend continue over the course of your life as an investor, down markets represent opportunities to buy stocks at depressed prices, rather than times to panic.
"If I were a millennial or Gen Z, I'd be thrilled. I'd want the market to stay down for 20 years," says Brad Klontz, a certified financial planner and financial psychology professor at Creighton University.
Regardless of what the market is doing in any given year, you'd be wise to invest consistently in a broadly diversified swath of stocks, Klontz says.
By employing a practice known as dollar-cost averaging — investing a set amount of money into your portfolio at consistent intervals — you virtually guarantee that you buy more stocks when prices are low and fewer when they're high.
While other wealth-building methods, such as starting a side hustle, can add an immediate boost to your finances, investing in the stock market can feel like it's having the opposite effect.
Contributing consistently to your 401(k) means more money coming out of your paycheck. And if markets are down, as they have been in 2022, you may see a number on your portfolio that's smaller than the amount you put in.
Over the long run, however, this delay in gratification pays off thanks to the power of compound interest. Say a 22-year-old investor makes a $1,000 initial investment in her 401(k), then contributes $100 per month thereafter. Over the course of her life as an investor, her portfolio earns an average annual return of 8% — comfortably below the average historical return for the S&P 500.
By the time she retires at 67, she will have contributed $55,000. That's a serious some of money, but it pales in comparison to what she will have earned, according to Make It's compound interest calculator: $512,000, for a total portfolio value of $567,000.