How Do People Get Rich from Stocks?
You know his name. You know his face. And you certainly know what he does best.
Warren Buffett is one of the most influential people in the world today. He has a net worth of US$89 billion, making him the fourth wealthiest man alive.
What’s the secret of his success?
It comes down to a very simple and unassuming business model. Buffett is the CEO of Berkshire Hathaway, a company that invests in other companies. From tech to banking to food, Buffett has a keen eye for finding value — and he has an uncanny talent for being in the right place at the right time.
His instincts have served him well. Since the 1990s, Berkshire Hathaway has skyrocketed in value. A single share in the company today is currently worth an eye-watering US$338,719.
So, is Warren Buffett’s achievement due to his superior intellect? Is he an exceptional outlier? Or can regular people achieve success from investing in stocks as well?
There’s no denying it: we live in stormy times. We’re seeing rising inflation, falling interest rates, and a more uncertain financial outlook. In fact, what the banks are offering for term deposits are measly these days.
Maybe you’re tempted to throw your hands up in frustration. It feels depressing, doesn’t it? How on earth can you secure your financial future when you can’t even look past your next paycheque? How indeed?
But here’s the thing: despite Warren Buffett’s phenomenal success, he’s actually not alone. Across the world, there are many people who have made a fortune simply by investing a small amount of their savings in the stock market.
Don’t believe me?
Well, consider this: if you had invested US$10,000 into Apple in 1980, you would have made US$5,833,400 by 2019.
That’s a heart-stopping increase of over 58,000%! What a whopper!
And when you think about it, that’s not the only success story around. What if you had taken a chance and invested in other companies in their infancy? Companies like Google? Netflix? Facebook? Just imagine how much better off you would be now.
Hindsight, as they say, is always 20/20. But the key to success is getting started with baby steps. You don’t gain anything unless you’re actually willing to invest.
What Percentage of Your Portfolio Should Be Invested in Stocks?
Okay, maybe you’re summoning up the courage to invest now. Maybe you’re starting to look at the opportunities around you. Maybe you’re even starting to have big dreams of hitting your first million.
It feels wonderful, doesn’t it? You can almost picture an early retirement filled with financial security and exotic holidays. It’s enough to put a wistful smile on your lips, isn’t it?
Well, there’s certainly nothing wrong with nurturing dreams. But, hey, be careful of allowing your emotions to sway you. You might be just be lured into making a common rookie mistake: throwing heaps of money into a single stock that you’ve heard has enormous promise.
If you’re thinking of doing that — well, whoa, you need to pull yourself back from the brink. That’s definitely not the correct approach!
Here’s the golden rule: you should never invest what you can’t afford to lose. Also, you need to exercise caution and spread your money across multiple investments. It’s a matter of managing your appetite for risk.
How can you do this?
Here’s one possibility — if you are willing to lose up to 35% of your money in stocks, then you could invest roughly about 80% of your money into them.
However, if you aren’t really willing to take that level of risk, you could go smaller. Invest no more than 10% of your money in stocks.
Remember: higher risk means potentially higher gain, while lower risk means potentially lower gain. Do you want a well-rounded portfolio? Then you should invest with the goal of achieving a healthy balance between growth and safety.
Does the Stock Market Always Go Up in the Long-Term?
When you look at stock-market indexes over the years, you will notice periods of growth and contraction. But, over the long-term, you will note that nothing quite beats the upward trajectory.
There’s a very simple reason for this: good companies will always continue to grow. And as they grow, their profits increase. This allows them to keep ahead of inflation.
Meanwhile, companies that underperform will get pushed aside by investors. And there is a process of rejuvenation as new companies rise to take their place in the stock market.
Through boom and bust, fresh opportunities will always present themselves. The key is to understand when to enter the market at just the right time.
A News Source for Investing in the Stock Market
Are you looking to get started in investing? Do you want timely information on the global economy? Do you want to discover new opportunities to build your stock portfolio?
The Wealth Morning website can provide you with a free daily e-letter, as well as a financial research product called Lifetime Wealth Investor.
Lifetime Wealth Investor will provide you with passive income ideas to grow your portfolio and secure your wealth in the long-run.
There’s never been a better time to get started with this!