There are plenty of ways to build wealth, but investing in the stock market is one of the most straightforward and attainable strategies for making a lot of money over time.
Investing shouldn't be considered a "get rich quick" scheme, as short-term strategies that guarantee results will likely end in losing more than you gain. Generating wealth safely often appears quite boring, as it's rooted in sensible decisions rather than gimmicks.
If you're looking to reach $1 million or more in the stock market, there are a few small habits that can set you on the right path.
Image source: Getty Images.
1. Start investing now
Perhaps the single best thing you can do to increase your odds of becoming a stock market millionaire is to get started investing as soon as you can. When time is on your side, you can take full advantage of compound growth.
With compound growth, you'll earn returns not just on the amount you invest, but on your total account balance. In other words, you're essentially earning interest on your interest. Over decades, this will have a snowball effect on your earnings, increasing your savings exponentially.
The sooner you get started investing, the less you'll need to contribute each month to reach your goal.
For instance, say you want to reach $1 million in total savings, and you're earning an average rate of return of 10% per year (which is in line with the market's historic average). Here's approximately how much you'd need to invest each month depending on how many years you have to save:
| Number of Years | Amount Invested per Month | Total Portfolio Value |
|---|---|---|
| 20 | $1,500 | $1.031 million |
| 25 | $900 | $1.062 million |
| 30 | $525 | $1.036 million |
| 35 | $325 | $1.057 million |
| 40 | $200 | $1.062 million |
Data source: Author's calculations via investor.gov.
It becomes increasingly difficult to build wealth the longer you wait to begin. No matter how much you can afford to invest right now or how many years you have to save, it's wise to get started sooner rather than later.
2. Avoid trying to time the market
The most successful investors are the ones who can avoid getting caught up in the market's short-term fluctuations and instead stay focused on its long-term potential.
It's no secret that stocks can be volatile. If the last few years have taught us anything, it's that trying to predict what the market will do is generally useless. Anticipating the market's movements and investing accordingly may sound like a sound strategy, but unless you're extraordinarily lucky, it almost never pays off.
A much safer approach is to simply invest in quality stocks and hold them for as long as they remain good investments -- ideally, decades. You're sure to experience at least a few market downturns in that time, but quality investments are much more likely to rebound and earn positive returns over time.
In other words, as long as you have a strong portfolio filled with stocks from healthy companies, it doesn't matter as much what the market is doing right now. By taking a buy-and-hold approach, you're far more likely to maximize your earnings while avoiding the risk of poorly timing the market.
3. Invest aggressively (but not too aggressively)
While it may sound backward, "safe" investments can sometimes be riskier to your earning potential over time. More conservative investments (such as bonds) are less susceptible to market volatility. However, they also generally earn much lower returns, often struggling to even keep pace with rising inflation.
This isn't to say that you shouldn't invest in bonds at all, as they can be a strong addition to any portfolio to help reduce risk. But if you're only investing conservatively, it will severely limit how much you're able to earn over time.
To reach millionaire status, it's wise to invest aggressively enough that you're earning solid returns (at least in line with the market's long-term average) but not so aggressively that you're taking on unnecessary risk.
One of the best ways to do this is to invest in strong stocks with the potential for long-term growth. These investments may not earn explosive returns overnight, but rather, they're the slow-but-steady type that can help you gradually build wealth over time.
Investing in the stock market is both an art and a science, but it's not as difficult as it may seem to generate long-term wealth. With the right portfolio and plenty of patience, you'll be on the path toward millionaire status.
