The stock market turns ordinary people into millionaires every day, which is actually one of the easiest ways for the average person to grow wealth. The sheer number of investment options can be daunting and the risk of loss touches, but overcoming these obstacles is actually much easier than you think.
Here’s a look at one of the simplest ways you can turn $ 10,000 into over $ 450,000 through the stock market.
How does the stock market increase your money?
When you invest in a stock, you buy a share of ownership in the company at all current market value. You can hold it for as long as you want. Then, when you need money, you can sell it at any current market value. The difference between what you initially paid for the stock and what you sell it for is called your earnings.
If you have invested wisely, the market value of your stocks should increase over time. Stock prices can fluctuate wildly in the short term, sometimes rising and falling many times within one day. But in the long run, e S&P 500, One of the best-known market indices, stands at a return of about 10% on average per year.
This means that if you have invested in an index fund that contains all the same stocks as the S&P 500, you will also see your savings grow by an average of about 10% per year for several decades. Your actual return will probably be a little less than that of the index itself because the index funds charge annual fees to shareholders. However, these fees are usually quite low, and amount to a few dollars a year for most people.
How to turn $ 10,000 into more than $ 450,000
If you were to invest $ 10,000 in the S&P 500 index fund today and it had an average annual return of 10% over the next 40 years, you would get almost $ 452,600. And that without investing another shekel after the initial $ 10,000.
Those who typically invest more money can end up with a much larger amount, and so can those who reinvest their dividends, surplus profits that companies have split with their shareholders. Not all stocks pay them, and those that do pay usually only quarterly. They are often only a few dollars, but they can still accumulate over time, especially after being reinvested for several decades.
Now, I imagine some of you are thinking, “This is great for someone who has $ 10,000 available, but I have none.” And the good news is, you do not have to. You can reach that $ 450,000 over 40 years by investing less than $ 81 a month, assuming you still earn 10% average annual return.
You will donate more of your money this way. An investment of $ 81 a month for 40 years will cost you close to $ 39,000. This is because a lot of your money will not be invested for the full 40 years. But it is much easier for most people to set aside a few dollars each month than to come up with thousands of dollars at once.
The beauty of an investment like this is its simplicity. All you have to do is keep putting in money, and the index fund will do the rest of the work for you. This will automatically give you a share of ownership in hundreds of companies in several industries, so your savings are diversified. This helps reduce your risk of significant loss.
The only thing you really need is patience. You will likely experience some ups and downs along the way, but as long as you trust your investment strategy and avoid emotional decisions, you can grow yourself a pretty significant nest egg over time.