It is no secret that wealthy individuals are more invested in the stock market than those with less money.
According to Goldman Sachs, a leader in financial and investment services, the wealthiest 1% of Americans own 50% of the total household equities.
So how can you get your share of the wealth and become a millionaire as well?
Keep reading to learn how to become a millionaire in the stock market and discover ways of making your first million.
Compounding Returns
You may have heard the term compound mentioned in chemistry class or tossed around by finance professionals. The term compound means:
- To put together
- To form by combing parts
When it comes to finance, compounding can mean the difference between becoming a millionaire by 30 or barely making any returns.
Compounding, when it comes to personal finance, means reinvesting earnings from an asset you own to generate additional future profits. In other words, your money will be making money. Take it from Peter Faricy, who is worth $8 million, and has been compounding shares of Discovery stock.
Going back to the basic definition of compounding, what you are doing is putting an additional investment, usually in the form of a dividend, on top of your principal investment to provide an additional profit.
For example, let’s say you decide to invest $9,000 in Apple stock. Apple stock is priced around $300, so you pick up 30 shares total. On those 30 shares, you receive a dividend of $0.77 each, totaling $23.01. If you decide to reinvest those dividends, your total investment is now equal to $9,023.01.
Now with your balance of $9,023.01, you will be earning an additional profit as the price of the stock goes up and as you receive additional dividends.
If we fast forward a few years, you can see how compounding adds up throughout the years.
Let’s say its been 20 years since your initial $9,000 deposit. Apple stock has been growing at a 10 percent annual growth rate, and you have been investing every dividend you receive back into the company.
Your total is now almost $67,000, and that’s without putting a single penny into it for 20 years. Leaving it for an extra ten years for 30 years total will leave you with $173,000.
Now imagine if you added money each month, which leads me to my next point.
Little by Little
Now let’s imagine a different scenario, where you don’t have an initial $9,000 to invest but would still like to participate in the stock market.
You don’t need a ton of money to start investing. But, something to keep in mind when applying for a brokerage account is some of them do require minimum deposits.
Let’s say you have $1,000 deposited in your account to begin, and you manage to save $100 to add to your portfolio each month.
In ten years, with a 10 percent rate of return, you will have close to $24,000. In 20 years, your portfolio will be worth close to $84,000. And in 30 years close to $250,000 and well on your path to millions.
For More Ways of Making Your First Million
Now that you understand how compounding returns work, you are well on your way to making your first million. Remember, investing can get tricky, but if you stick to the plan, you too can be a millionaire.
