There are so many different ways that you can start amassing sums of money. You can start a business, create a new product, or invest your money. In my opinion the best path for building wealth is still the United States stock market. The stock market has helped to grow wealth for beginners investing and professional investors alike. Men like Warren Buffett, Carlos Slim, and Peter Lynch have built their fortunes because of the growth of individual stocks.
Imagine if you had bought Walmart before Sam Walton had made the company a household name. You could have invested in Berkshire Hathaway when Buffett took the company public. More recently, you could have bought shares of Apple back in 2001 for a few dollars a share. All of these stocks would have made you a millionaire today. The key is finding a great growth stock and getting in early. You might just find yourself investing in the next great growth story.
The stock market is great because it is one of the best methods for building wealth that I have ever seen. The average annual return of the real estate market has been between 4 and 5 percent. That's a solid return. The bond market has historically returned between 5 and 6 percent. That's a reasonable rate of return as well. The average annual return for the stock market is in the double digits. The stock market has the potential to lose a lot of money for investors as it did during the crash of 2008. It also has the potential to make a lot of money for investors as it did with the market boom of the 90's.
The key to investing is to properly manage your risk by being diversified. Don't put all of your money in any one asset class. Build a portfolio with a great mix of stocks, bonds, and mutual funds. You can diversify your interests amongst a bunch of different asset classes. This strategy has worked well for experts like Jim Rogers and beginners investing like myself. A diversified investor can sleep easy at night knowing that they will not lose all of their money on one risky bet.
Also, be careful to avoid falling in love with an individual stock. Stocks go up and stocks go down. You need to be prepared to sell when a stock rises too fast too quickly. Even great companies like Apple and Amazon reach a point where they just become too expensive to hold onto anymore. Set a price target for every investment that you make. When your stock hits that price, you should start selling off your shares. I have never seen an investor burned by selling too early. Follow these steps and you are well on your way to making money in the market.
