When many people think of investing in the stock market, they may picture Wall Street brokers making million-dollar trades, or day traders scrambling to complete dozens of transactions per day.
However, investing in the stock market is much simpler than it may seem, and you don't need to be an expert to make a lot of money. In fact, even if you have absolutely no investing experience, it's still possible to double your money. Here's how to get started.
Choosing your investments wisely
The first step is to make sure you're investing in the right place. There are countless different types of investments out there, including stocks, bonds, index funds, mutual funds, and ETFs. While all of them have their advantages and disadvantages, some are riskier than others.
Investing in individual stocks requires a lot of research, and you'll need to dive into each individual company's financials to determine whether it's a solid investment. Then you'll need to invest in at least 10 to 15 different stocks to build a diversified portfolio.
A simpler option is to invest in exchange-traded funds (ETFs). An ETF is a collection of stocks grouped together into one investment. In other words, by investing in a single ETF, you're instantly investing in hundreds or even thousands of stocks at once.
While there are many different ETFs to choose from, S&P 500 ETFs or Total Stock Market ETFs carry less risk and still earn solid returns. These types of funds follow the stock market as a whole. This means that although they will have their ups and downs year to year, over time, they're likely to experience positive average returns.
The best part about these funds is that they're low-maintenance investments. You don't need to choose which stocks are included in the fund, and you don't have to worry about buying and selling at just the right time. All you have to do is invest, then let the fund take care of everything else.
The key to doubling your money
Once you've decided on where to invest, you'll need to invest consistently and hold onto your investments for as long as possible. Time is your most valuable resource, and holding your investments is key to building wealth.
Even if you can't afford to invest much money, by giving your investments as much time as possible to grow, you can still see substantial earnings.
Say, for example, you invest $1,000 in an S&P 500 ETF that's earning a 10% average annual return. “Average” is the key word here, because you won't find a fund that earns 10% returns every single year. Over time, however, the highs and lows will average out.
Even if you didn't make any additional contributions, that $1,000 investment would double in around 8 years. If you wanted your money to grow faster, though, you could continue investing a little each month.
Let's say that in addition to your $1,000 initial investment, you also invest $100 per month. Assuming you're still earning a 10% average annual return, you'd reach $2,000 within one year. After five years, you'd have around $9,000. In 20 years, you'd have more than $75,000.
Regardless of your experience level, it's possible to make money in the stock market. By investing wisely and holding your investments for the long term, it's easier than you may think to generate wealth.
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