How do You Build Wealth in The Stock Market?

Does the idea of investing into the stock market overwhelm you?

Most potential investors fall into 2 categories when they think about the stock market; some perceive it as a highly risky investment, while the others think about it as the only wealth building investment.

No matter which perception you currently have, investing into the stock market is a proven long term strategy to build wealth.

There are a few key strategies to start with, such as: dollar cost averaging, diversification, paying your self first and leveraging the power of compounding interest.

Some people don't start investing into the stock market because they believe that they do not have enough money currently saved.

You can begin with as little as $100 per month!

This small amount over time can make a tremendous difference in building your overall net worth.

Net worth is calculated as everything you own minus everything that you owe. (Net worth=Assets-Liabilities) As you are building wealth, you will want to leverage as many available resources and strategies as possible.

Leverage the power of compounded interest

Compounded interest describes the effect of interest on a portfolio.

The interest that is earned monthly, quarterly or annually accumulates, and then is added back onto the principal balance.

This process continues to be repeated throughout your investment period. Compounding interest is best leveraged when an investor starts early.

For example:

A 22 year old starts with as little as $30 per month, (only $1 per day),

earning 10% interest per year.

How much would she have at the age of 50?

$68,000!

$68,000 is a substantial amount to earn with such a small monthly investment.

Imagine how much wealth you could build with a larger monthly investment!

Almost everyone can spare a few dollars per day to ensure their financial future.

This amount is less than most daily coffee runs or a can of soda.

When building wealth in the stock market, it is best to start early.

However, you can still leverage the power of investing at any age.

The key is to get started.

Dollar Cost Averaging

Dollar cost averaging describes investing in regular intervals, despite what the current market conditions may be.

This strategy allows the investor to buy more investment shares when the price is low and fewer shares when an investment share price is high.

The overall effect to the portfolio is a lower overall investment share price.

This method of investing is also used to reduce the effect of making a single large investment, by reducing risk of market timing.

Most investment companies will allow you to begin investing with as little as $100 per month.

Pay Yourself First

If you are like most people, there just does not seem to be much left over at the end of the month to start investing with.

One of the major keys to building stock market wealth is to Pay Yourself First.

Set up automatic bank drafts from either your bank account or your paycheck directly in order to begin building wealth on a monthly basis.

You will find that the money that you put into investments will not be missed.

By paying yourself first, you are securing your financial future.

Ask your employer what investment plans or retirement plans are available and set up an automatic payment.

You can also ask your banking professional or a professional financial advisor to help you set up automatic savings plans from your bank accounts.

Diversify and Actively Manage

Stock market investing can be unpredictable- how do you know which investments are going to go up and which are going to go down?

If we knew that answer, we would all be rich.

To spread out your investment risk, consider investing into mutual funds.

Mutual funds are comprised of individual stocks and often allow for smaller, regular purchase amounts on a monthly basis.

Another strategy is to diversify.

By choosing investments in many of the asset class types (Large Cap, Small Cap, International, etc.), you are spreading your investment selections across many markets, giving your portfolio an increased opportunity to make money.

As your portfolio grows in size, consider individual stocks and more diversification within investment types.

Stock market investing has been a proven strategy for investors across the world.

To build wealth: start immediately, dollar cost average, pay yourself first and diversify your investment choices.

By James Mcinnes