Investing in stocks is considered one of the great things where it only takes one great deal and holding onto it for a long time to change the future of your family. Great wealth is generated from decades of holding stocks in companies that consistently generate growing profits. Some refer to this approach as “business-like investing”.
How to Get Rich from Stocks
The basic strategy for getting rich from stocks is to choose a profitable company and then hold your investments for a long time. This type of passive investment has the potential to make you very wealthy.
Wealth Means Long-Term Investing
Long-term investing is an easy way for most people to build wealth from stocks. The secret is the power of compounding.
The Power of Good Investment
Imagine that on March 13, 1986, the date of Microsoft’s initial public offering (IPO). Many cars were selling for about $10,000 that year. But what if you had bought shares of Microsoft instead of buying a car? Those investments would be worth over $25.8 million by 2021.
Holding is Key
Many people would not have held onto Microsoft shares for those three decades. They would have sold after doubling or tripling their money. They would have missed out on the huge profits they could have earned had they continued investing.
Example: Investing $10,000 in 1986
What if you didn’t have the luck or skill to discover Microsoft? The good news is that great companies, especially the boring ones, can be fantastic investments. Not all of them have to be Microsoft to be worth investing in.
The Time Value of Money
You multiplied your money significantly in this scenario. You did nothing for decades but allow the time value of money to work for you. You did nothing but own an index fund. You didn’t do anything for decades except let the time value of money work for you.
How to Choose Long-Term Investments
“Boring” stocks – the kind you might not give a second look – are often the best. Pay attention to stocks that are financially strong and pay dividends.
Three Traits of Long-Term Investing
Good investments combine three traits: strength, valuation, and care. These stable, well-managed companies will help you slowly get rich, which is the most reliable way to build wealth.
Industry Tricks
All investments come with a certain degree of risk, but some industry tricks can help you reduce risk and maximize profit. Among the keys to building a portfolio of good stocks:
- Stick to stocks you know
- Diversify
- Reinvest dividends
- Know when to sell a stock
- Choose funds that promote passivity
Takeaways
Investing can be simple. It requires a few good decisions, organized properly, to offset bad decisions. Give time a chance to heal. Be selective about what you buy, don’t sell too much, and focus on real companies that sell real products or services for real money. Trading stocks and timing the market are not the real places to earn sustainable money.
Frequently Asked Questions (FAQs)
When you sell a stock, who buys it?
Average traders rarely know who buys the stock when they sell it. There is someone buying the stock, but it can be anyone else participating in the markets. For example, it could be a hedge fund, a pension fund, or another person like you placing a buy order on their mobile app.
What does it mean when a company buys back its own shares?
A company buys back its own shares to increase the stock price and consolidate ownership. By buying shares of the company and canceling them, fewer people own a larger stake in the company. The value of the company does not change, but there are fewer shares, so each share represents a larger stake in that company.
When
When another company buys you, what happens to your shares?
When another company buys you, the impact on the transaction depends on the deal reached between the two companies. If it is a cash-only acquisition, shareholders of the acquired company will receive cash. In other cases, shareholders’ shares may be exchanged for shares in the acquiring company.
Source: https://www.thebalancemoney.com/the-mathematics-of-getting-rich-by-investing-in-stocks-358105
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