The stock market may be volatile, but it remains one of the most effective tools to help grow your savings.
Depending on how much you can afford to invest, you can potentially accumulate hundreds of thousands of dollars with the stock market. With enough time, you may even become a millionaire investor.
Getting rich in the stock market requires strategy, however. Here are three methods that can help you make the most of your money.
1. Start investing early
The more time your money has to grow, the more you can potentially earn. Ideally, you'll have started investing in your 20s, giving you several decades to generate wealth. But if you're off to a late start, you can still earn more than you may think.
Say, for example, you're 40 years old with no savings. If you were to begin investing, say, $300 per month while earning a modest 7% average annual return on your investments, you'd have around $340,000 by age 70.
On the other hand, let's say you waited until age 45 to begin saving, but you could afford to invest $350 per month. Assuming you're still earning a 7% average annual return, you'd have roughly $266,000 by age 70.
In other words, even if you increase the amount you're saving each month, you'd still earn more overall by starting to invest sooner.
2. Invest for the long term
The stock market can be volatile, and it's often subject to corrections. However, try to ignore the day-to-day activity of the stock market and focus on the long term.
If you get too caught up in what the market is doing right now, it's easy to start to panic when stock prices fall. That could make it tempting to pull your money out of the market, which will hurt your long-term savings.
Rather than worrying about market downturns, it's best to continue investing regardless of what stock prices do. In fact, it's sometimes smart to invest during downturns, because you can stock up on quality investments when prices are lower. Then when the market inevitably bounces back, your stocks should recover along with it.
3. Do your research
To give your investments the best chance to survive over the long term, it's crucial to invest in the right stocks.
This is especially true if you're investing in individual stocks rather than mutual funds or exchange-traded funds (ETFs). Before you buy, study the company's underlying business fundamentals to gauge how strong the organization is. If it has a solid track record, healthy financials, and a smart leadership team, it's more likely to survive market turbulence.
It's also important to make sure your portfolio is diversified enough. This is simple if you're investing in funds, such as ETFs, because most funds contain hundreds or even thousands of stocks. But if you're investing in individual stocks, it's best to have at least 10 to 15 stocks from a variety of industries in your portfolio. With a diversified portfolio, your investments are likely to stay strong overall even if a few of the stocks don't perform well.
It's possible to generate long-term wealth by investing in the stock market. With the right strategy in place, your money will grow faster than you might think.