Becoming a millionaire through investing may be a dream that many people wish to achieve, but the road to riches via the stock market does not solely rely on luck or getting one big win. It requires careful planning, disciplined strategies, and a vision for the longer term. There are as many tales of rags to riches alongside get-rich-quick successes in stock trading, but the truth is few ever went from nothing to everything overnight just through trading stocks or options. So even though each looks at things differently, there are strategies and principles that have been proven effective many times over I am going to show you how people get rich from stocks.
1. Compound Interest is the Secret Sauce to Wealth
It is one of the most potent forces of creating wealth via stocks — compounding. Over the long term, you can earn interest on your principles year over year and compound those earnings. That gives the magic of compounding a significant helping hand to investors who reinvest dividends or capital gains.
If, for illustration purposes only, you invest $10,000 in a stock portfolio that yields an 8% annual return with your earnings reinvested back into your account; or you could end up with more than $46,000 after only 20 years. This cascading effect is why long-term investors generally outperform short-term traders.
2. Investing in High Growth Businesses
Another way to become wealthy through the stock is by investing in companies that have high growth potential. This behavior can help you understand why high growth firms seem to inflate their share prices, and then some (if they want higher stock price with reinvestment behavior).
With its epic profits split between Apple, Amazon and Tesla this year, the power of investing in innovative companies over the long haul has been made plain. Investors who were savvy enough to have bought these firms early in their history and held them for many years have had their investments increase by multiples of hundreds.
But at the same time, investing in explosive growth can be treacherous. Due to the nature of these companies, stock prices can experience extreme changes in conjunction with market movements or quarterly earnings. What matters is finding companies that actually have good business fundamentals including revenue growth, profitability, and a competitive edge in their respective industries.
3. Dividend Reinvestment
Dividend: Reinvestment is another heavy wealth-building strategy. One of the ways many successful investors, including Warren Buffett, have made their wealth is to reinvest dividends from companies that are high quality and pay dividends. Dividend stocks assist you in earning a steady income, then reinvest the proceeds back into the stock so that you have more shares with them. In the long run, this would also multiply your gains in value of portfolio.
Continue reading…
Subscribe to get access to full premium content
Are you already a member ? Login
