What is the average return for an individual on the stock market? You might be surprised to discover that on average, the return is around 10%. That is the average. Obviously, for those who understand the potential of getting rich through investments, that figure can be much higher.
Yet despite such potential, a startling number of people either don’t know how to gain wealth through investments or are not even aware of how reasonably possible it is. This seems to be particularly true among the under-35 set, of whom only 37% purchased one or more stocks during 2017 and 2018.
The truth of the matter is that at its core, investments can offer an opportunity to generate extra income with only a minimal risk on your part. The better you understand the concept of how to get rich through investments, the easier it will be to see how simple it is to make the jump yourself.
Why Should I Invest?
Residual income can be realized in a variety of ways. While there are inherent risks with making investments, particularly with the stock market, there is nonetheless a considerable degree of control over that risk. Or to put it another way, you can minimize any potential damage with smart, conservative investments. This is especially important during the pandemic and the uncertainty surrounding the economy.
What would the point then be, you might ask? The great thing about investing is that even at the lowest levels, we’re talking about the possibility of generating hundreds, even thousands of dollars over time. For example, if you were to invest $10 weekly, you stand to make around $500 after a single year. After a decade, that weekly investment could return thousands. That is just $10. It is estimated that if you invest $50 a week for ten years, you stand to earn nearly 40K. Chances are you can find $10 somewhere in your budget to begin making weekly investments.
That is why you should invest. It is as simple as that.
Still, with so many different stocks, ways to buy, ways to sell, and everything else, it is easy to feel a little overwhelmed. Believe it or not, the seeming vastness of investing in stocks is not as complex as you might think. Let’s break down the basics of the type of investing we are talking about.
Getting Started with Weekly Investments
Let’s be completely honest: There are going to be times in which the stock market is utter chaos. So many different components influence these prices. While it is a good idea to research and understand what you investing in, particularly when it comes to keeping up with the highs and lows of your particular stock, we are going to offset the unpredictable market to a certain degree. This is why we are focusing on the benefits of weekly investments.
Even at a pace of $10 a week, the losses are likely to be minimal. Keep in mind the average return is somewhere around 10% or even 8%. There will likely be losses. However, by embracing consistency, which is one of the cornerstones of good investment practices, the gains have a strong likelihood of distancing the losses. Different people can have different experiences, but those average returns we’re talking about were also not simply invented out of thin air.
Start with the basics. Learn how to open a brokerage account. Then you should keep in mind that stock prices are almost entirely determined by the success of the companies themselves. The highest stock prices tend to come from companies with upward momentum. Researching and choosing a stock with a successful track record can allow you to grow an investment over time. This means keeping up with your weekly efforts.
It also means staying the course, and remaining with your investments as long as humanly possible. This allows you to earn dividends if the company in question offers them. Jumping in and out of the market, which can also be described with a rapid buy and sell pattern, can result in losing out on dividends. This in turn can dramatically impact the return on your investment.
You should also make it a point to learn the difference between individual stocks and index funds.
The Basics of Investing: Should I Choose Stocks or Index Funds?
Some investors like to keep a diverse portfolio, which can cover both stocks and index funds. An individual stock can be great but will require a good deal of research and other factors. For those who want to be able to invest at minimal risk, with very little knowledge building being asked of you, index funds are often the best choice.
Index funds consist of dozens, perhaps even hundreds, of stocks that essentially mirror an index when taken as a whole. What is a good example of this concept? Take the S&P 500. The Fidelity 500 Index Fund would be another good example of what we are talking about.
Is there something to be said for focusing on an individual stock or two? Absolutely. For some investors, individual stocks generate considerably more revenue than the index funds. However, as mentioned before, this benefit can be potentially offset for you by the fact that succeeding solely with individual stocks will require a good deal more work than simply putting a little money weekly into an index fund.
A Few More Basic Stock Market Tips to Keep in Mind
We can’t cover absolutely everything you need to know about the stock market. It is a good idea to research how to invest in this article. However, you will find that if you are just starting, and want to keep things relatively simple, it will be easy to do so. You can set up a brokerage account online in about fifteen minutes.
Let’s wrap things up with a few more stock market investment tips. These tips can be particularly useful to those who are also interested in individual stocks:
- Look for growth with individual stocks: Unless you crave a distinct degree of uncertainty in your investment opportunities, you should start your investment dreams with the hottest-performing stocks. Learning about these will require some basic research. What you want to do is look at the stocks that are already in a growth state.
- Do I have to hold on to my stock forever? Of course not. Day-traders are an entire class of investment professionals who engage in the practice of what is known as short selling. This is naturally risky, and it does require a certain degree of experience with how the stock market works, but short selling should not be disregarded. Perhaps, build up some experience first.
- When should I get out? This is another question that pertains mostly to individual stock buying. Honestly, you should dump stock when it feels right. This can extend to keeping up with not only how the stock performs, but how the company behind the stock is doing. This is what we mean about individual stocks requiring more effort on your part, but the short-term payoff can be amazing when circumstances are in your favor.
- Don’t worry about things like diversifying or leverage (for now): As you start to learn about the stock market, you are bound to start hearing about concepts like diversifying or using leverage. These can be powerful tools for an investor. However, they are best used by those who have been investing for a long time. As a newcomer, and in the interest of not becoming overwhelmed, we would suggest not worrying about these for a little while.
Conclusion: Don’t Wait to Start Investing
Your main takeaway from all of this new information should be the following: Don’t wait another year, or even another week, to build your financial future.
Image by: Andrew Binetter