First off, start with $1000.
You thought you would need more didn’t you? No, $1000 will do.
Now take your favorite stock, I’m going to pick Microsoft as our example. Microsoft is hardly the sort of crazy penny stock that the get rich quick merchants push at you and it isn’t some crazy pink sheet company with a way of turning water into gasoline.
Microsoft is no Apple miracle. It is a boring blue chip stock, but look at its price history.
Register for free ADVFN account and you can see on an average day over the last 10 years Microsoft moves 2.1% from low to high.
Let’s forget the rest of the market, news and FX – instead we’ll just watch the stock trade.
How hard can it be to pick the bottom and buy and then spot the top and sell?
Afterall, if you did nothing but stare at Microsoft for the next 2 months you are going to get pretty intimate with the stock.
Lets not get greedy, lets just capture 1%. This means we don’t have to grab the bottom or the top, just get near the bottom and out near the top.
This leaves 1.1% on average day missed, but who knows, perhaps you might get more than 1% on an average day.
However we should not be greedy and instead aim for 1% per day. How many days will it take us to get to a billion dollars?
A thousand years?
A hundred years, perhaps?
No. It will take just 5 years and 4 months.
Sadly there are only 251 trading days in a year but if you could trade every day, like you can in Forex, you could turn a thousand dollars into a billion in 3 years and 9 months.
So far so good. At this point you have two choices.
1) Stop reading and open a brokerage account with $1000 or 2) read on and find out why this simple road to vast riches can’t be taken.
The market is random. If you don’t believe me you can get on with the plan I already outlined
If you do believe me then read on and you will discover the real secret of getting rich investing in the stock market.
Compounding is the secret to getting rich investing in the stock market.
Compounding takes $1000 to a trillion in 1389 trading days at 1% a day and to a trillion in 2080 trading days. You could pay off the US national debt with the profits from your $1000 in less than 2400 days.
Clearly, compounding is incredibly powerful- even a miniscule rates and it can turn thousands into millions over a twenty year horizon.
If you saved $5000 a year and managed to make a 15% yearly profit from your capital, at the end of 30 years, you end up with $2.5m.
The permutations are, of course, endless. You might start with less yearly savings and take a few years to get your investing skill honed. Who knows you might be a genius and get 25%.
Some years will be crazily bullish and other horribly bearish, but in the long run the power of compounding will deliver.
While you will likely not be able to make a billion in 5 years, compounding your gains is how you take your wealth to the next level and the stock market is the place to go to do it.
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