Becoming a multimillionaire is a dream many people share but few ever achieve. The good news is that it's possible for the average investor to become one.
Getting rich in the stock market may seem like something that's only feasible for Wall Street experts or investors with deep pockets. But you don't need to be wealthy or know a lot about investing to make a significant amount of money.
What you do need, though, is a strategy. And these three steps can put you on the path to multimillionaire status.
1. Start investing as early as you can
Time is your friend when it comes to making money in the stock market. Investing is playing the long game, and there's no safe way to get rich overnight. The more time you have to invest, the more you can potentially earn.
Depending on your age, you may need to invest a significant amount each month to reach your goal. But the longer you put off investing, the harder it will be to become a multimillionaire.
Say, for example, you're 30 years old and are just starting to invest. If you invested around $600 per month while earning a 10% annual rate of return, you'd accumulate nearly $2 million within 35 years. However, if you waited until age 35 to start saving and only had 30 years to let your investments grow, you'd have to invest around $1,000 per month to reach $2 million.
If you're off to a late start, it may be more challenging to become a multimillionaire. However, it's much better to start investing now than to delay.
2. Choose your investments wisely
Picking the right investments is crucial if you want to make as much money as possible, but the process of choosing stocks can seem counterintuitive. While it's possible to make a lot of money by investing in "the next big thing" -- like a shiny new start-up that promises to change the world -- you'll often earn higher returns by sticking to slow-but-steady types of investments.
For many investors, a good option is an S&P 500 index fund. These funds track the S&P 500, meaning they include just over 500 stocks from some of the largest companies in the country.
Since the S&P 500's inception, it has earned an average rate of return of around 10% per year. Also, these funds are some of the safest types of investments available. The S&P 500 has seen its fair share of corrections and crashes over the years, but it's always recovered from every single one of them.
No matter where you invest, your investments will always be subject to short-term volatility. But with S&P 500 index funds, there's a very good chance you'll earn positive returns over the long run.
Once you've chosen your investments, it's equally important to commit new money consistently. If you're aiming to become a multimillionaire, you'll likely need to invest at least a few hundred dollars every month for several decades.
3. Don't try to time the market
Inevitably, the stock market will experience a downturn at some point in your investing journey. Market corrections are normal and healthy, but they can still be intimidating. If you're worried about losing money, it can be tempting to try to time the market. However, that can sometimes do more harm than good.
Timing the market involves selling your investments when stock prices peak, then buying again when prices are at rock bottom. In theory, this sounds like a good idea. But in reality, this strategy is nearly impossible to pull off.
The stock market is unpredictable, and even the experts don't know exactly how it will behave. Take the 2020 market crash, for example. Not only was the crash itself sudden, but its almost instantaneous recovery was even more unexpected. And if you try to time the market but end up buying and selling at the wrong moment, you could potentially lose a lot of money -- making it harder to reach your multimillionaire goal.
Rather than trying to time the market, it's better to simply ride out the storms. If you're putting your money in the right places, your investments should recover eventually.
Becoming a stock market multimillionaire is challenging but not impossible. By starting as soon as you can and coming up with a strategy, it's easier than you may think to get rich by investing.