First of all, I want to point out that the historical long-term return of the stock market is a little over 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 cases, but I’d rather put my money into investments that don’t require maintenance, renters, property taxes, or other “inconveniences” as I would refer to them. Of course, your own house, the one you live in, is another story.
Now you’re probably thinking, “That’s great and all, but how does this help me make a million dollars in the stock market?” I’m 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 of years, then I wish you good luck, but unfortunately you are more likely to lose money than make money trying to beat the market. However, if you are willing to find some good companies to invest in and are patient, there is a good chance that you will do well in the stock market. In fact, even stocks that have performed very poorly can earn you good money on your investment, as the Stock Performance Guide on the 1stock1 website demonstrates.
Another very important investment lesson is time on the market. Over time, most established companies continue to grow, and as a result, their share 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 behaves in a much more predictable way. This doesn’t mean your investment will always make money, but time puts the odds in your favor.
The third lesson I will give you about investing in stocks is discipline. Determine why you are investing and what you want to achieve through the investment. Once you decide on your reasons for investing, make a plan and stick to it. Don’t be lured by the next “sure thing” in the stock market. For every one that works, several more will fail. If it were a sure thing, investors would know about it and increase the stock price accordingly. If you know information that the rest of the stock market doesn’t, then you’re looking at insider trading charges. It is very easy to be tempted to make “quick money” and much more difficult to be disciplined with an investment plan. Unsurprisingly, the path that requires the most work produces the best results.
Finally, I would like to highlight the importance of diversification. Probably the biggest mistake you can make when investing is putting all your money into one stock. Not only is this strategy risky, it is also less likely to return as high a return as a diversified portfolio. Having your money invested in various stocks helps minimize risk while increasing overall return.
