Nearly every investor has a goal of earning as much money as possible in the stock market, but not everyone will be able to achieve that goal. Getting rich by investing is challenging, and you'll need the right strategy.
Fortunately, there are a few secrets to making money in the stock market, and it's easier than you may think to become a successful (and wealthy) investor. With the right approach, you may even become a multimillionaire someday.
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1. Choose the right long-term investments
Choosing the right investments is a critical aspect of building wealth, but it's equally important to make sure you're choosing stocks you're willing to hold for the long term.
It's possible to make money with short-term investing approaches (like day trading, for example), but it can be incredibly difficult and risky. A safer option is to invest in companies that are likely to grow over time. You won't experience explosive earnings overnight with these investments, but you are more likely to see consistent returns over the long run.
If you're interested in buying individual stocks, do your homework to make sure you're buying companies with the potential for long-term growth. Or, if you'd rather take a more hands-off approach, you may choose to invest in S&P 500 ETFs -- which contain hundreds of strong stocks bundled together into a single investment.
2. Invest consistently
If you're aiming to become a stock market multimillionaire, it's not enough to simply buy a few shares of stock and then never invest again. Rather, you'll need to continue investing consistently to help your money grow faster.
Compound interest is a major factor in how quickly your money grows. With compound interest, you earn returns not only on your initial investment, but also on all the gains you've already earned. In other words, you're earning interest on your interest.
Think of your investments like a snowball rolling down a hill. It may take time for the snowball to grow in size, but the larger it becomes, the faster it will roll. When it comes to your investments, the more money you're able to invest, the larger your snowball will become, and the faster your savings will grow.
3. Hold your investments for as long as possible
Finally, after you've chosen strong investments and are investing regularly, the next step is to hold these investments for as long as you can. Ideally, this means continuing to invest for several decades.
Building wealth takes time, but the more patient you are, the more you can potentially earn. Say, for example, you're investing in S&P 500 ETFs and are earning a 10% average rate of return on your investments. In other words, the highs and lows you experience each year average out to around 10% per year over time.
Let's also say you're continuing to invest $500 per month while earning a 10% average annual return. At that rate, you'd accumulate close to $1 million after 30 years. But if you continue investing for just 10 more years, you'd have more than $2.6 million in total.
It's not easy becoming a stock market multimillionaire, but it is possible -- even if you're not an investing expert. By buying quality investments, continuing to invest consistently, and holding your stocks for the long term, you can earn more than you might think.
