The stock market is a wealth-building machine, and it's possible to accumulate hundreds of thousands of dollars or more by investing. However, to maximize your earnings, it's important to have the right strategy.
While it's possible to make a lot of money in the stock market, it's also possible to lose a lot with the wrong approach. Fortunately, it's easier than it may seem to boost your savings, and these three strategies can grow your money like magic.
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1. Start small
You don't need to have a lot of money to begin investing. In fact, it's far better to start investing now even if you can't afford to contribute much, rather than waiting until you can invest more money each month.
When it comes to generating wealth in the stock market, time is your most valuable resource. Thanks to compound interest, the longer you allow your investments to grow, the more you'll earn over time.
Say, for example, you start investing $200 per month right now. Assuming you're earning a modest 8% average annual return, you'd have around $622,000 after 40 years.
On the other hand, say you waited 10 years to start, but at that point, you began investing $400 per month. After 30 years, you'd have only $544,000 accumulated, all other factors remaining the same. It pays, then, to start investing now -- regardless of how much you can afford to contribute.
2. Invest consistently
Consistency is key to maximizing your savings, and one of the easiest ways to invest consistently is to set up automatic contributions. With this strategy, you can set your investments on autopilot and grow your savings without even thinking about it.
If you're investing in a 401(k), you may be able to transfer a portion of each paycheck directly to your retirement account. With an IRA, you can set up transfers from your bank account to your retirement fund on the schedule you choose.
Another advantage of automatic contributions is that it can help build investing into your budget. When you know exactly how much you're investing each month, it's easier to make saving a priority.
3. Leave your investments alone
Once you're investing a set amount on a consistent basis, do your best to avoid withdrawing any of your money.
In some cases, taking your money out of the market will result in taxes and penalties. In addition, if the market is in a slump when you withdraw your money, you could potentially end up selling your stocks for less than you paid for them -- thus locking in your losses.
The best way to avoid tapping your savings is to ensure you're only investing money you won't need for the foreseeable future. Double-check that you have an emergency fund with at least six months' worth of savings. This way, if you lose your job or face an unexpected expense, you can still pay the bills while keeping your investments untouched.
Investing is one of the easiest and most effective ways to build wealth. While the stock market can be intimidating, by sticking to these three investing strategies, you can grow your money substantially over time.
