Though patience and investing is required, it really isn’t that hard to do, over the long term!
Many people don’t know how to become a millionaire, or how to even live a financially stable life. This isn’t always due to the lack of perseverance or hard work, (though it does help to have the last two!) It is more of a lack of financial understanding and awareness of tools to get there.
The main thing that will be focused on this post is how to become a millionaire the long-term way, and the easy way. This isn’t going to talk about ‘get rich quick schemes’ but rather how anyone that’s dedicated with patience and the willingness to diversify can become a millionaire. This isn’t bad advice, especially for the younger crowd, (like 17-year old’s like me!) This will be explained later…
First off, before I go on, I need to cover a topic that many of you haven’t heard of this… Drum roll please…. ‘Compound Interest.’ Basically, in a nutshell, compound interest is interest off of interest. It is something that grows exponentially, not just 10+10+10 and so on. Here is an example of the magical power of compound interest. Remember this is just an example of compound interest, not the real thing that I am going to teach!
Here is a commonly used example– Say I were to offer you 2 prizes, one is to take a penny that is doubled 30 times, and another is 1 million dollars. Which would you rather choose? I’m sure there are a good majority of you that would rather just go ahead and take the 1 million dollars. However, many of you would be surprised. The penny doubled 30 times would end up being preciously……
over $10,000,000! Very neat how one penny could end up being over 10 million dollars.
Now the way this applies to the real world is having your money grow with compound interest, except but this time in the stock market.
In case you don’t know what the stock market is, which by the way it’s always good to learn new financial vocabulary, it is the market as a whole of all the stocks out there. A stock is basically the share-hold of a company and is a type of investment. The stock market is risky though, especially if you buy just one stock.
The real way to easily become a millionaire, for simplicity and for being more guaranteed over the long run, is by diversifying your stocks as much as possible. This would be preferably being done by doing an investment such as an index fund. This is something where you a whole market of stocks is compiled into one fund.
On average over many decades the most popular index funds like the S&P 500, have on average returned roughly 10% a year. That means that a $1.00 one year could end up being 1.10 the next year.
Compound interest applies to the stock market very well, your money over many years can grow into something big. Now can I tell you exactly when you can become a millionaire? No, since there are so many variables involved, like how much you invest into the stock market. Ideally you should invest as much as possible on a monthly basis, but don’t put in more than you can afford to lose! There is always risk involved, and when a recession hits, the stock market can go down drastically, but will recover in the long run.
The idea is to follow the ups and downs, and hold onto your investment for as long as possible, and again, diversify. As long as you do all of that, you could be a millionaire with a pretty high probability in a matter of decades. This may sound like a long time, but the more you put in and the earlier you do it, the sooner you will reach 1 million dollars.
I hope you found this helpful, and since this was just a introduction to the amazing world of investing and the stock market, continue to learn and do your research, future millionaires!