The Secret to Making Money in the Stock Market

 in Blog / Invest

Everyone is looking for a single investment to get rich quick. Something no one else knows about. The secret to making money in the stock market.

The “secret” is simple.

When you invest in the stock market, the key is making sure you reduce your risk.

How the heck do you do that?

By maintaining a simple mindset for every investment you make. It comes down the investment mantra, that I have always kept close. If you were flipping a coin it would go a little something like this:

Heads, I win; tails, I don’t lose much.

This is the theory that will save you money, headaches, and ultimately will make you a great investor.

For the average investor who does not want to dig deep into market reports, or review balance sheets, the “secret” is incredibly simple.

Buy index funds that track the market and hold them forever.

That’s it.

For most, that is too boring. It can’t be that easy. But, that is literally all it takes.

Einstein’s 5 ascending levels of intellect were:

Smart

Intelligent

Brilliant

Genius

Simple

The “secret” for almost everyone is simplicity. That Simplicity is investing in index funds.

You will have a nice steady return for a long period of time. This strategy still has its ups and downs, but historically, it will grow over time.

Too many folks try to over complicate it. They want to get rich quick and lack the patience required to build wealth. They think that index funds seem too easy. So they go out and try to beat the market.

If you want to beat the market, it’s going to take work. Reading every word of quarterly reports, digging into company CEO’s, and developing an understanding of how a business works before investing in their stock. Most people will still fail.

  • You need to understand the global economy and what makes it tick.
  • Learn about market sectors and how to find opportunity within those sectors
  • Evaluate those companies by reading quarterly reports, understanding superb management, and developing a strong understanding of how the business works.
  • Understand the current and future value of that business.
  • Remove any emotion from the investment.

Don’t believe me? Here is a chart that shows the difference between investors and the market:

How to grow your wealth to $1 million+

1) Invest Consistently

Just like with anything if you are not investing consistently you will not be able to accumulate wealth. You must continue planting the seeds so you can one day sit under the shade tree.

2) Stick to the Plan

Once you choose a strategy, stick to it. If you decide to invest in index funds with say $500 a month, make sure you always use that $500 in index funds. As you accumulate more wealth you can then add strategies to your plan.

3) Look at Your Accounts Less Frequently

As you can see from the above chart, the market always eventually goes up. If you look at your investments on a daily basis (especially when they are down) you are just torturing yourself. Look at your investments every quarter on once a year. Unless you can stomach seeing losses. Use the free tool Personal Capital to track your investments.

4) Reinvest the Dividends

Until you have enough wealth that your money replaces your job’s income, continue to RE-invest every penny back into the market. This will create a snowball effect that will accelerate your investing at a much faster pace.

Final Thoughts

Becoming a boring investor is the way to invest unless you are willing to diligently study. You will never beat the market, many pros never beat the market. So, buy index funds, reinvest the proceeds, and stay consistent. The true secret is to automate. That may be boring, but you will become rich.

Cheers,

Andrew

andrew
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