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Have you thought about investing in the stock market? There are only 3 ways to create wealth, do you know what they are? The richest people alive have made their money from starting businesses, investing in real estate, and investing in the stock market. All 3 of these wealth drivers have one thing in common, someone has to invest money in order to make money.
When you start a business or invest in real estate, there are ways to leverage other people’s money in order to make money. However, it is hard to obtain a loan from a family member, friend, or someone else within your network when you are just starting out. As time goes on, you may find yourself in an opportunity to invest or start a business/real estate project. If that opportunity arises, I believe you should capitalize on that opportunity, but for now lets look at the last driver of wealth.
Can You Beat the Stock Market?
If you follow day trading or penny stocks, you know who Tim Sykes is. Tim Sykes was able to turn $12,415 into over $1,650,000 by the time he graduated college in 2003. That is very impressive but do you know what’s strange about his success? If you go to his website now, he only boast about turning that $12,415 into $4,650,000. 14 years have passed since he made his first million in the stock market and in 2016 he had verified annual return of 237%.
If he is doing so well, why hasn’t he turned that $1.65 million into double digits? Well its because he knew his aggressive strategy would not work long term. Which is why he focuses on teaching courses, leading conferences, and helped start profit.ly. He knew that he couldn’t make millions a year by using his aggressive strategy.
I’m not telling you all of this because I think Tim Sykes is a hoax or fraud. He has proven his strategy has worked over a couple of years and he has also helped a couple of his students recreate that success. I believe it is important to realize that Tim was able to obtain these results in the early 2000s. All of the big banks have HFT(high frequency trading) software, which allows them to scalp pennies off of stocks. These softwares are so fast, that they can take advantage of small & large price swings making it tough for individual investors to make a quick buck.
The Stock Market
The stock market is a level playing field when you fundamentally invest. Do you know why people lose money in the stock market? Its because someone things they can beat it and try to day trade. With the advancement of technology, it is almost impossible to successfully day trade. Now, you may find some great trades and make some extra cash off of some day trades but you will not be able to replicate this over the rest of your life.
HFT are also so sophisticated, that they know when to take advantage of pump and dumps and get out right before the price drops. If you want to know more about how HFT softwares control day to day technical activity, check out Flash Boys by Michael Lewis. It is a very entertaining read and opens your eyes to the reality of day trading in today’s market.
If you want to create real wealth within the stock market, you have to invest long term. The best way to get started is by investing in a low cost index fund. One of my favorite’s is VOO. VOO is managed by Vanguard and tracks the S&P 500. The expense ratio for VOO is less that .04%, in other words you would not even realize your paying a management fee. Since The Great Depression, the S&P 500 has held an annualized return of about 10%.
Slow & Steady
Start putting away money today. I highly recommend signing up for Ally because of their low cost commission fees. Their software and trading platform is the best you can get for such a low commission fee. Start depositing $100 into your investment account every couple of weeks and let your portfolio grow. We all like investing in individual stocks, so I won’t tell you to only invest in a low cost index fund. With that said, you should invest at least 65% of your portfolio into an index fund to minimize risk and track the market.
You make money in the stock market by continuing to invest. That means don’t sell when VOO or an individual stock goes down in price. If you truly believe in a company, you are presented with a great opportunity. When you buy more shares, your average price will go down, resulting in a greater profit once the stock price rises. Don’t view this as a way to get rich quick but the stock market is a great way to create financial independence when you invest correctly.