Investing in Stock: Turn $5,000 into $1,000,000
First of all, I want to point out the long term historical return of the stock market is a little bit higher than 10% per year. Very few long term investments can make this claim. Some would argue that real estate is a better investment, and it may be in some instances, but I would rather put my money in investments that require no maintenance, renters, property taxes, or other "drawbacks" as I would refer to them. Of course, your own house, that you live in, is another story.
Now you are probably thinking, "That is great and everything, but how does this help me with making a million dollars in the stock market?" I am glad you asked. One of the most important lessons about investing in stocks that anyone can give you is patience. If you think you are going to make a fortune in the stock market overnight or even in a couple years, then I wish you good luck, but unfortunately you are more likely to lose money than gain money by trying to beat the market. However, if you are willing to find some good companies to invest in and are patient, you are very likely to earn a nice return in the stock market. In fact, even stocks that have performed very poorly, can earn you some decent money off your investment as demonstrated by our Stock Performance Guide.
Another very important investment lesson is time in the market. Over time most established companies continue to grow and, as a result, their stock price also grows. In the short term, stocks can be very volatile and their prices can go up and down daily. However, as you extend your time frame, a solid stock performs in a much more predictable manner. This doesn't mean your investment will always make money, but time does put the odds in your favor.
The third lesson I will give you about stock investing is discipline. Determine why you are investing and what you want to accomplish through investing. Once you decide your reasons for investing, come up with a plan and stick to it. Don't allow yourself to get lured into the next "sure thing" in the stock market. For every one that works out, several more will fail. If it was a sure thing, investors would know this and bid the stock price up accordingly. If you know information that the rest of the stock market doesn't, then your looking at insider trading charges. It is very easy to be tempted to earn the "quick buck" and much more difficult to be disciplined with an investment plan. As expected, the road that requires the most work yields the best results.
Finally, I would like to stress the importance of diversification. Probably the biggest mistake you can make in investing is putting all your money in one stock. This strategy is not only risky, but also less likely to earn as a high of return as a diversified portfolio. Having your money invested in several stocks helps minimize the risk while still increasing overall return.