In today’s world, where get-rich-quick schemes revolving around cryptocurrencies and day trading are rampant on social media, a group of everyday workers is quietly accumulating significant wealth through a surprisingly simple but effective method. Financial expert David Bach highlights that a specific asset allocation strategy, followed by numerous retirement millionaires, is the 70/30 rule.
Bach, author of the book The Automatic Millionaire, recently discussed wealthy individuals’ habits on the podcast CEO Diary. He pointed out that recent statistics from Fidelity Investments show about 654,000 investors now considered 401(k) millionaires, all of whose wealth is primarily derived from retirement accounts and typically invested conservatively. These frugal investors often resemble what UBS describes as “Everyday Billionaires.”
When examining how these ordinary employees generated such wealth, a clear trend became visible. They didn’t dabble in meme stocks or attempt to time the market. Instead, they consistently saved and adhered to an investment mix of approximately 70% in stocks for growth and 30% in bonds for stability.
Bach elaborated that the average amount saved was about 14% of their income, and how those funds were invested is crucial. “It has to be invested for growth, and growth means equity,” he said.
Boredom Is Beautiful
This 70/30 allocation stands in stark contrast to the high-risk strategies frequently promoted to younger investors. Bach pointed out, “Being sexy is how you go broke” when it comes to long-term wealth building, stressing that “boredom is beautiful.” Allocating 70% to stocks allows for significant appreciation over the long term, while a 30% bond allocation serves as a buffer against market volatility, helping investors “stay the course” and avoid panic selling during downturns.
Successful investors typically achieve this mix using index funds, like the Vanguard Total Stock Market Fund or the Nasdaq 100, rather than relying on picking individual stocks. The aim isn’t to outsmart the market every single day, but to let the “miracle of compound interest” work over decades.
However, the 70/30 rule is just one piece of the puzzle. Bach asserts that automation is key to building wealth. He emphasized that the primary distinction between wealthy individuals and those living paycheck to paycheck isn’t just their income but the implementation of a “pay yourself first” system.
“If financial planning isn’t automatic, it will likely fail,” warned Bach. He noted that around seven out of ten Americans live paycheck to paycheck, often because they try to save whatever is left at the end of the month, which is often nothing. “Automatic millionaires” ensure that 12.5% to 14% of their income is deducted immediately into their investment portfolios before any spending takes place.
Consider if That Sandwich or Drink is Worth It
For anyone who believes they can’t afford to invest, Bach shared a thought-provoking calculation. He prompted listeners to consider how much they would waste daily to lose out on $10,000 over a year. The amount came out to $27.40, roughly equivalent to a high-priced sandwich or drink after work. On the flip side, investing that same daily $27.40 for 40 years could grow to over $4.4 million, assuming a stable 10% annual return.
While the 70/30 rule encourages growth, discovering daily capital is essential. Bach mentioned that in just two decades, the number of billionaires in the U.S. could leap from 8 million to 24 million, driven largely by stock and real estate escalations. He believes that, as the global economy evolves with AI advancements, this decade offers “the greatest opportunity to build wealth in our lifetimes.”
Nonetheless, the assumption that steady compounding will always yield predictable wealth depends heavily on economic stability, a luxury not available to investors in countries like Argentina. With geopolitical tensions, climate-related costs, and the fast-evolving impact of AI on job markets, future confidence may be lower than seen in the past five decades. The staggering $38.6 trillion national debt and the ongoing debates about the dollar’s stability as the world’s primary reserve currency highlight that the 21st century is poised to be quite different from the 20th.
Interestingly, Gen Z seems to be largely overlooking Bach’s counsel. While younger Americans (approximately ages 15 to 28) are beginning to invest earlier than those before them, they often favor riskier and nontraditional assets, are utilizing more fintech and social media, and show less preparation for retirement. Several surveys reveal cryptocurrencies are particularly prominent among this generation; around 44% to 55% start with or primarily engage in them, while 32% to 41% own individual stocks, and about a third have mutual funds or ETFs. Alternative investments, including cryptocurrencies, make up roughly 31% of young investors’ portfolios.
