Investing in the stock market is a fantastic way to build wealth, and the best part is that you can make a lot of money regardless of your skill level. While generating $1 million or more may seem like a lofty goal, it's more attainable than it may seem.
You will, however, need the right strategy to maximize your earnings while minimizing risk. There's no single correct way to invest, but with these three steps, you'll be on your way to building a million-dollar portfolio.
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1. Start investing early
Time is your most valuable resource when generating wealth in the stock market, and the sooner you can get started, the less you'll need to invest each month to make a lot of money.
Thanks to compound growth, your savings will grow exponentially faster the more time they have to accumulate. For example, say you have a goal of saving $1 million, and you're earning a 10% average annual return on your investments -- which is in line with the market's historic average.
Here's approximately how much you'd need to invest each month to reach your goal, depending on how many years you had to save:
| Number of Years | Amount Invested per Month | Total Portfolio Value |
|---|---|---|
| 20 | $1,500 | $1.031 million |
| 25 | $850 | $1.003 million |
| 30 | $525 | $1.036 million |
| 35 | $325 | $1.057 million |
| 40 | $200 | $1.062 million |
Data source: Author's calculations via investor.gov.
Accumulating $1 million isn't easy, but it's much more achievable the earlier you begin. Even if you can't afford to invest hundreds of dollars per month, getting started now can still help maximize your savings over time.
2. Invest as consistently as possible
It's tempting to try to time the market and invest at just the right moment. After all, if you invest when stock prices are at their lowest and sell when the market peaks, you can earn a hefty profit. However, timing the market accurately is next to impossible, and if your timing is off, you could lose more than you gain.
A safer strategy is called dollar-cost averaging, and it involves investing set amounts at regular intervals throughout the year. With this approach, you'll end up investing when the market is reaching both highs and lows. Over time, those ups and downs should average each other out.
Dollar-cost averaging takes the guesswork out of when to buy, as you never need to worry about what the market is doing in the short term. And when you're not letting emotions drive your decisions, it's easier to maximize your long-term earnings.
3. Choose the right investments
Perhaps the most important factor when building wealth involves investing in the right places. While there's no one-size-fits-all approach to investing, the safest stocks are from healthy companies with the potential for long-term growth.
The strongest companies will have solid underlying business fundamentals, ranging from a competitive advantage in the industry to sound financials to a competent leadership team. These stocks may still take a hit in the short term during periods of volatility, but they're far more likely to rebound.
When your portfolio is made up of strong stocks, you have a much better chance of generating long-term wealth while minimizing risk. And if you have a particularly robust set of investments, you could even beat the market and earn higher-than-average returns over time.
Earning $1 million or more in the stock market isn't easy, but it's simpler than it may seem. By choosing the right investments, investing consistently, and getting started now, you'll be on your way to generating wealth that lasts a lifetime.
