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Question: Can you make money in the stock market?
Short answer: Absolutely, YES! Literally anyone can make money in the stock market.
But there’s also a long answer that includes some details. Like why it’s possible for anyone to make money in the stock market. And how anyone can make money in the stock market.
So that’s what we’re doing today. We’re giving you the long answer to the big question…
Can You Make Money in the Stock Market?
Many of us have built the stock market up in our heads as this super complicated marketplace where only the smartest, richest, oldest, whitest men can make money. Warren Buffett, right? He’s like the symbol of the term “stock market investor”.
I won’t deny that the stock market is complicated. But here’s the good news: you can steer clear of the most complicated parts and stick with a simple stock market plan that is basically guaranteed to make you money.
The Caveats
If you’re thinking this sounds too good to be true, let me assure you, there are caveats that bring this big promise down to earth. So before we dig into the details of making money in the stock market, let’s cover those caveats.
You Won’t Get Rich Quick
Yeah, people have gotten rick quick in the stock market. But really, that probably had less to do with their investment sense and more to do with dumb luck. People have lost a ton of money in the stock market the same way.
Dependable wealth in the stock market takes time. Consistent contributions over time…that’s the key to making real money in the stock market.
There Will be Days You Lose Money
The market goes up and the market goes down. On the up days, you’ll make money, and on the down days, you’ll lose money. The good news is that the market has far more up days than down days.
On average, the stock market returns are around 7% per year. That average includes the roaring 1950’s when returns were up to 16%, as well as the great recession when losses averaged around 3% per year. If you invest for the short-term, you could lose money. But if you invest for the long-term, you’ll always make money. And if that statement is ever untrue, it means our entire financial system has completely collapsed and we’re living in an apocalyptic hellscape, in which case you have bigger things to worry about.
Interested in trading foreign currencies? Here’s how to learn a trade on the foreign exchange market.
How Much Money Can You Make in the Stock Market?
Naturally, there are lots of factors that go into how much money you can make in the stock market. Like:
- How much you invest
- How much time you give your investments to grow
- And how the stock market performs
Wanna look at a couple examples?
Example 1: $100/month for 10 years at the average 7% returns
When you’re young and $100/month sounds like a lot to you, that’s the perfect time to start investing. Because that means you’re young enough to give your investment lots of time to grow.
If you invest $100 every month for 10 years, you will have invested a total of $12,000. But thanks to your 7% average stock market returns, you’ll have a lot more than that in your account. You’ll have over $17,000. You make over $5,000 in the stock market with an average return of 7%!
But what if we give this more time to work? What if we give it 30 years instead of 10?
Example 2: $100/month for 30 years at the average 7% returns
Now we’re really making money in the stock market! $100 per month over 30 years is a total investment of $36,000. But this graph shows your account balance at $116,945. You made $80,945 in the stock market by giving your investment more time to grow!
By the way, look at that interest line on the graph…notice how it’s getting steeper over time? That’s because of compound interest. You probably know about interest earned on savings and investments; interest is the money your money makes while it sits in your account. Compound interest takes that a step further. You don’t just make money on your money. You make money on the money your money is making!
So that line will continue to get steeper, indicating exponentially increasing returns thanks to compound interest. It’s basically magic.
Now, what if we boost that investment?
Example 3: $500/month for 30 years at the average 7% returns
Let’s say you want to make sure you can retire early, so you’re going to focus a full $500/month on your nest egg…
$500 per month for 30 years gives you a total investment of $180,000. But your balance is now $584,726! At 7%, you’ve made $404,726 in the stock market!
So can you make money in the stock market? I’d say so!
If you want to crunch your own numbers on this investment calculator, head over to Calculator.net.
Your Fool-Proof Plan to Make Money in the Stock Market
Our investment philosophy isn’t about “gaming the market”. We don’t want to spend every waking moment analyzing individual stocks. We want to consistently make smart, reliable investments over time. Then just let time do its thing and make us money.
Step #1: Open an Investment Account
To get started, you need to open an investment account with a mutual fund company or brokerage. This can be done online in just minutes.
You have lots of options for brokerages. Betterment is a great option for newbies. There is no minimum amount required in your account, and they are among the easiest sites to navigate as a new investor. But you can also consider Ally Investment, E*Trade, and Wealthfront. For a little help choosing, check out NerdWallet’s reviews.
Step #2: Choose Index Funds
Now you get to choose which investments to buy. And index funds are the way to go.
Index funds are like little sampler baskets of a bunch of different stocks and/or bonds. So instead of investing in just one company, you’re investing in lots of companies. Because no one wants all their eggs in one basket, right?
The S&P500 Index is one of the most popular index funds. It gives you a sliver of all 500 S&P companies.
But there are tons of other options. Different indexes focus on different stocks and bonds. Some focus on foreign markets, some on specific industries, some on company size. You can dig as deep into your options as you’d like! Your brokerage will have research resources available for you. You should even be able to call them up and speak to a financial advisor about your unique goals.
Step #3: Automatically Fund Your Account
Now it’s time to fool-proof your investing strategy.
Instead of just hoping you remember to transfer money every month to your investment account (or hoping you even have the money to transfer after your monthly spending!), prioritize your investment by setting up automatic transfers.
You can tell your investment account to automatically take a certain amount of money from your checking account on a certain day of the month and automatically invest the money in more shares of your index fund. Right after payday is perfect because the money will be whisked away to your investments before you get a chance to spend it on nonsense!
This simple act of setting up auto transfers takes only minutes, but it basically guarantees your financial success.
Step #4: Don’t Friggin Touch It!
And now we wait…
Leave your money alone and let the market do its thing!
One piece of advice: don’t look at your fund performance every day. As we said, there will be days when your fund is down. And that’s fine because it will eventually come back up. But watching the fund go down can cause unnecessary panic and ruin your day.
As an example, my funds plummeted about $20,000 in December, 2018. The down market was all over the news that month, but I resisted the urge to look at my funds because I knew it wouldn’t do me any good. I literally just learned today (while checking on it for this post!) that it was that bad. On the plus side, the market has rebounded, and my funds have almost completely recovered as of today.
In the short-term, the plummet looks abysmal:
But when you look at the big picture, this plummet is just a blip:
As a general rule, I just check my funds once a year to make sure I still like them. Other than that, I forget they even exist.
Additional Resources
Smart Women Finish Rich – 2018 Edition by David Bach (financial advice in plain English; a fun way to get your entire financial life in order).
The Money Book for the Young, Fabulous, and Broke by Suze Orman (specifically geared toward the upcoming generation and the unique financial problems we face).
Now, can you make money in the stock market? Of course you can! Get out there and start investing today!
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