Investing in the stock market is one of the best ways to become wealthy, and nearly anyone can make money with the right approach. However, becoming a millionaire through your investments is a goal that not everyone will be able to achieve.
You don't need to start with a lot of money to build a million-dollar portfolio. What you do need, though, are the right personality traits and a good investing strategy. If you have these four traits -- or can cultivate them -- you have a much better chance of getting yourself on the path to millionaire investor status.
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1. You're patient
One of the most important things to remember about the stock market is that it's not a "get rich quick" scheme. There's no way to make a lot of money overnight -- at least, not without accepting even higher odds that you'll lose it all just as quickly.
To get rich in the stock market, you'll need to be patient. It can take years or even decades to see substantial growth, but the wait will pay off.
For example, say you're investing $400 per month in index funds that are earning an average 10% annual rate of return.
- In five years, your portfolio would be worth around $29,300.
- In 20 years, it would be worth $274,900.
- In 40 years, it would be worth $2,124,400.
The longer you keep your money invested, the more time it has to grow, and the more time that growth has to compound. The power of compounding can help your investments increase in value exponentially -- because your older gains are building gains of their own. So if your goal is to become a millionaire, start investing as early in life as possible and be patient as your money grows.
2. You're able to invest consistently
Consistency is key when investing in the stock market. You don't need to have a lot of money to invest, but saving a little each month can add up more than you may think.
If you invest just one big lump sum or only make a few investments, and then leave your portfolio alone, it will still grow. For example, consider this variation on the math from the previous section. Let's say you stopped adding $400 every month once the first five years were up, but left your money invested. When you hit the 20-year mark, you'd have about $122,400. Not bad, but your portfolio would have grown much more if you'd continued adding to it consistently.
3. You're willing to do your research
All investments require a certain degree of research, but some need more than others. How much you'll need to do will depend on your investing strategy.
If you're investing in individual stocks, you'll want to do a hefty amount of research into each potential purchase to ensure you're picking companies that will make solid long-term additions to your portfolio. Index funds, on the other hand, don't require nearly as much research.
Think about how much time and mental energy you're willing to dedicate to your investments. This can help you determine what types of investments are the best fit for you. If you enjoy digging into companies' financial histories, buying individual stocks may be right for you. If you want to limit the effort you need to put into such research as much as possible, you may be better off investing in an S&P 500 index fund.
4. You're in it for the long haul
To succeed as an investor, you'll need to be able to weather the storms. The stock market will always have its ups and its downs, and some of those downs are guaranteed to be severe. It's not a matter of if a bear market will arrive -- it's a matter of when.
The best investors keep their cool during periods of volatility. If you panic when the value of your portfolio is plunging and sell all your investments, not only could you lose money in the short term, but you'll be significantly limiting your long-term earnings potential.
The good news is that historically, the U.S. stock market has always seen positive long-term returns, and it has always come back, eventually, from its downward corrections.
The bad news for people who run for the sidelines when prices are sliding is that nobody can accurately predict when a downturn is going to hit bottom, which means it's tough (almost impossible) to properly time when you should get back into stocks.
What does this mean for you? It means that it's crucial to stay invested even when the market takes a turn for the worse. As long as you've done your research and are invested in solid companies or funds, your overall portfolio will likely pull through and bounce back after even the worst stock market downturns.
Becoming a millionaire investor isn't easy, but it is possible -- even if you don't have a lot of money to invest. With the right strategy and the right mindset, you, too, could become a millionaire someday.
