First of all, I want to point out that the long-term historical performance of the stock market is a little over 10% per annum. Very few long-term investments can make this claim. Some would argue that real estate is a better investment, and it may be in some cases, but I prefer to put my money in investments that require no maintenance, renters, property taxes, or other “inconveniences” as I would call them. Of course, your own house, where you live, is another story.
Now you’re probably thinking, “That’s cool and all, but how does this help me make a million dollars on the stock market?” I’m glad you asked. One of the most important lessons about investing in stocks that anyone can give you is patience. If you think you are going to make a fortune in the stock market overnight or even in a couple of years, I wish you good luck, but unfortunately you are more likely to lose money than to make money trying to beat the market. However, if you are willing to find good companies to invest in and are patient, it is very likely that you will make a good return on the stock market. In fact, even stocks that have performed very poorly can earn you decent money on your investment, as the Stock Performance Guide on the 1stock1 website demonstrates.
Another very important investment lesson is time in the market. Over time, most established companies continue to grow and, as a result, their share price also grows. In the short term, stocks can be very volatile and their prices can go up and down daily. However, as you expand your time frame, a solid stock behaves in a much more predictable way. This does not mean that your investment will always make money, but time puts the odds in your favor.
The third lesson I’ll give you about investing in stocks is discipline. Determine why you are investing and what you want to achieve by investing. Once you decide your reasons for investing, come up with a plan and stick with it. Don’t be fooled by the next “sure thing” in the stock market. For every one that works, several more will fail. If it was a sure thing, investors would know about it and raise the stock price accordingly. If you know information that the rest of the stock market does not, then you are looking for insider trading charges. It is very easy to be tempted to earn quick money and much more difficult to be disciplined with an investment plan. Unsurprisingly, the road that requires the most work produces the best results.
Finally, I would like to emphasize the importance of diversification. Probably the biggest mistake you can make when investing is putting all your money in one stock. Not only is this strategy risky, it is also less likely to return as high a return as a diversified portfolio. Having your money invested in multiple stocks helps minimize risk while increasing overall returns.