The sad truth is that not everyone who invests in the stock market becomes rich. However, with the right strategy, many have been able to build a massive amount of wealth and what I want to do now is share 4 methods that have worked for me!
Method #1: Investing
If you must take advice from people, then it has to be from those who know what they’re talking about. When it comes to investing, big investors like Warren Buffett believe that long-term investment is the best way to grow wealth. He is one of the richest people in the world and he grew his wealth using the same method. But successful long-term investing isn’t as simple as throwing money at the stock market. There are things that you need to know to make the best out of your long-term investment.
The two major things you need to know before investing for the long-term are planning and patience. You need to know how much money you are willing to invest and the amount of risk that you can tolerate. You can either make money in the stock market or lose money. This is the risk involved in the stock market so it is important that you don’t use all your life savings in case the investment does not favor you. Without planning your finances, it may be difficult for you to invest for a long time. You may need money for other things and that will force you to touch your investment.
Patience helps you to stay on course when investing over a long time horizon. This type of investing is all about wealth creation and not trying to get rich overnight. Although a few lucky investors have made a lot of money in a short time, this is not the experience that most investors have. Don’t hope to become the next richest person after few months but be patient and your investments may provide you with income for life. The average annual return on stocks based on data from S&P 500 index is about 10%. There are times when the value of your investments will rise and other times where the market will be in a down cycle and your portfolio will see a dip. Patience will help you overcome the emotional roller coasting that most people experience when investing. Time is your best friend when it comes to long-term investment.
There are different types of investments you can make in the long-term depending on the risk level you want to assume. If you are younger, you can invest more of your money in stocks and less in safer investments like bonds. But as you grow older or get close to retirement, you can may start to flip your investing strategy to protect your investments to ensure they can support you throughout your golden years. At the end of the day, whatever you decide to invest in comes down to the level of risk you’re willing to accept. Stocks as I just said usually come with greater risk but can offer great returns to lets talk about them now!
Investing in stocks means that you are buying ownership of a company. You can build wealth by buying shares of a company that you believe will perform well. The value of your shares will increase as the company grows. You can make money either by selling your shares when the value increases or through dividends paid to you the shareholder. Shares are liquid which means buying and selling them is very easy. You can even do this from the comfort of your home through any internet-connected device.
One of the rules of investing to follow is that you should only invest in what you know. Therefore, it is important to do your research before putting money into any investment. You should only invest in assets you are familiar with. It is also good to diversify your investments across different industries and companies to spread out your risk in case one sector or geographical area is hit hard financially.
Another investment you can invest in for the long-term are bonds. Bonds are certificates of debt issued by the government or some corporate organization in order to raise money. You are required to pay a certain amount of money for a fixed time in return for interest and capital. You can make money from bonds by receiving interest or selling your bond when the value increases. Bonds involve less risk and you can be assured that you will get your money back. However, because of their lower risk levels, bonds usually have lesser interest rates.
Method #2: Speculating
Another method to grow your wealth is through speculating. Speculating involves predicting the future value of an asset. Investors who speculate may buy an asset with the hope that the value will increase within a short time. However, investors can lose everything on speculative investments and they can also make extreme gains, which is why speculation is a popular strategy. It is more suitable for people with a high tolerance for risk than for old investors close to retirement. The difference between speculators and long-term investors is that they do not hold any asset for long. Once an asset performs well, based on their prediction, they sell it off and take their profit.
Although the average annual return from the stock market is over 10%, not all stocks perform at the same level. The performance of some stocks is over 10% while some will be below that value. Speculators use a wide range of techniques to predict high performing stocks and invest in them instead of spreading their risk as most investors do. Speculators are often active traders who are looking for opportunities to take advantage of fluctuations in price to make profits.
There are generally two types of speculators. The bullish speculators expect the price of a stock to rise in the future so they invest in it intending to sell them at a higher price. The bearish speculators expect the price of a stock to fall so they sell the stock hoping to buy them back when the price is low to make a profit.
Let’s look at an example so that you can have a better understanding of how speculation works. At the start of the Covid-19 pandemic, many companies started working on developing a vaccine for this novel disease. A speculator would study some of these companies and buy their shares with the hope that they would be successful. If one of them should become successful and create a working vaccine, the share price would increase and a speculator can quickly sell their shares to make a profit.
Before using this investing strategy, make sure to plan your finances and determine the amount that you are willing to risk each day to reduce the chance of losing everything. Keep in mind you should ensure you have ample savings before employing this risky form of investing!
Method #3: Trading
Stock trading as the name suggests is the buying and selling of financial instruments. It also involves taking advantage of price fluctuations to make a profit. Trading can be very profitable and you can use it to build wealth if you employ the right strategy. The first thing you should consider before you start trading which broker to use. Not all brokers are designed to handle the large volume of trades that you may have to carry out in a day. Trading is serious business and you must see it as one if you want to make a profit. You have to create time for it every day and constantly develop your knowledge. You must also be up to date about what is going on in the market such as upcoming events that may affect the price of your assets. Moreover, you should be keeping a list of stocks that you want to trade and do your due diligence to learn as much as you can about them.
Just like when speculating, you need to have a financial plan. Set aside a certain amount that you want to trade every day based on your tolerance for risk. Apart from money, you also need time. Opportunities can come at any time of the day and once you miss them, you may not be able to get them back.
Now, what are some forewarnings that you should know before active trading? First, it can be easy to invest more money than you can afford after seeing a few initial wins. Next, it can be overwhelming to be inundated with a ton of financial information to sift through before buying or selling your assets which makes this type of investing rather unfriendly for new investors. Luckily, if this method of investing does appeal to you then you can usually start investing with very little money by buying fractional shares and leveraging low-cost brokerages.
My final piece of wisdom is to not be greedy for profit. You’re probably not going to become a millionaire overnight but you can make a decent amount of money if you stay away from deals that sound too good to be true. You must be able to recognize patterns in the market to know when to buy or sell. Setting realistic goals may help you make more profits. Determine how much you wish to make in a day and create a strategy that can help you achieve this goal.
Method #4: Bogling
“Bogling” is simply another name for index fund investing. It was named after John Bogle who was the founder and Chief Executive of The Vanguard Group. His ideal investment is a low-cost index fund held for a lifetime. The next question that you may have now is what is an index fund?
An index fund is a type of mutual fund or exchange-traded fund (ETF) that consists of stocks, bonds, and other investments that are designed to track an underlying index. Several indexes like the Dow Jones Industrial Average and the S&P 500 tracks the performance of the stock market. If you invest in an index fund tracking the S&P 500 for instance, it would invest in the stocks available in the S&P 500 and attempt to make the same return.
Index fund investing is one of the easiest ways for you to build wealth. The historical return on index funds has always been greater than actively managed funds. The fee is also cheaper because unlike mutual funds that are actively managed, the index fund automatically invests in the stock on the index that they are tracking. The fees for an index fund can be as low as 0.05% while the fees for a mutual fund can be as high as 1% to 3%. With an index fund, you will minimize your risk because of the diversification of your portfolio.
Another benefit of an index fund is that it is good for beginners who know very little about investing. You don’t need to actively manage your portfolio or spend much time researching when to buy or sell. Most people who actively manage their portfolios still find it hard to beat the market. However, you still have to do your own research before investing with an index fund. Remember that you should not invest in anything that you do not understand. Each index fund has its own cost and requirement and you need to know which one is right for you.
After seeing all these benefits, the next thing that you may want to know is which index fund is good for you. The Vanguard 500 Index fund tracks the S&P 500 index fund and it is one of the largest index funds. The fee is as low as 0.03% which means that you would only have to pay $3 for every $10,000 invested. Another one is iShares Core S&P 500 ETF that also tracks the S&P 500 with a fee of 0.03%. There are many others which you can find by searching online.
In summation, building wealth is a gradual process but if you are following the right steps, you are guaranteed to have success!