As the title says, let's take a closer look at investing in the stock market. If you are considering this option I am fairly sure that you came across multiple articles or videos from people telling you to buy this, buy that, do this, do that etc. when it comes to stock market investments. Also, a lot of people advertise their content with a combination of the two magic words: "get rich". For example, "Buy XCoin and get rich by next month" or "A simple worker got rich with YCoin". That's why the following meme is so popular 😁
Everybody has their own opinion when it comes to investing. That's why it's very important for YOU to do your own research BEFORE you invest a single dollar. Seriously ... it's ok to listen to other people's thoughts, but in the end, make sure YOU are deciding what you invest your money into.
"Wait a minute - you have the word "rich" in your title too ... very suspicious!"
Yeah, but I'm not telling you to buy X or buy Y 😀Also, what I'm about to present here is stuff that influencers or financial specialist don't usually say when it comes to investing.
To quickly answer the question in the post's title ... the answer is - it depends!
First, let's consider what "rich" actually means. For some people being rich means owning a house, a car and having an yearly income of above 100k $. To someone else, being rich means having 50+ million dollars in assets of all kinds. Here's my take on being rich. Anything above 5 million dollars.
So, with the definition of "rich" out of the way, let's see what it would mean to actually get rich from investing into the stock market. Let's stick with 5 million dollars and look at an example.
Say you decide to invest in a dividend paying ETF, for example the iShares MSCI USA Quality Dividend ESG UCITS ETF or QDIV for short 😄 To reach a 5+ million dollar portfolio you would have to start with an initial investment of around 1000 shares (which at today's share price would mean 52.590$) and have an annual investment of 200k $ for 16 years! How did I reach these numbers? The internet is full of various sites providing investment calculators - I used this one for the numbers I gave you above; and here's a screenshot with the results.
"Hold on! You said nobody knows for sure what's going to happen with the stock markets! How's that damned thing supposed to be accurate?!"
You're absolutely right. It's not accurate. It's an estimation based on some conservative inputs and quite a lot of money that you would have to invest annually. However, it does give us an ideea of what it takes to get to 5 million dollars with such a financial instrument.
"16 years?!? For f*ck's sake ... that's a lot of time!"
Using the same calculator I linked above, here are the results.
Start with 80k shares initial investment - that's about 4.2 million dollars - and you keep the 200k $ annual investment and voila, in two years you reach 5.1 million dollars.
"WTF?! You're just making fun of us now - randomly throwing numbers into a calculator! God dammit!"
I'm not making fun of you 😉 What I am doing, is making a point about investing. And this is what very few people actually say.
Rich and very rich people have an "unfair" advantage when it comes to investing.
There are families that don't make 200k $ yearly. How the hell are you supposed to invest that much? Not to mention the 4.2 million dollars initial investment. I don't have that kind of money and 99% of the population are in the same situation. But hey, there are people who have this money and actually make these insane profits.
Historically, the US stock market has avaraged around 10% yearly profits in the last 100 years. Why the US ? Cause they have the strongest economy in the world. And yet, 10%, on average, in yearly profits.
The second important point I want to make is that, unless you are rich or very rich, chances are you won't get rich in two years with the stock market (or any financial instrument).
"But you can make 10X, 100X or even 1000X profits with crypto."
True, there are coins that have had these insane returns. And for each of those coins, there are tens or hundreds of other coins that went to 0, making investors lose all their money. As I said above, thinking and hoping for these insane profits is what made the "where lambo" meme so popular. Unfortunately, these kind of investments are rare and nobody knows NOW if they are going to yield 2X, 5X, 1000X or if they will go bust in 6 months time. If you wanna take your chances, by all means, do whatever feels right for you - at the end of the day, it's your money, not mine 😉but don't complain that you blew your account when XYZCoin turns out to be a scam.
Now, before closing this post, let's look at a more realistic investment example; I'm going to take a stock that's currently at 100$/share and pays quarterly dividends of 2$/share. The initial investment is 5000$, with a monthly investment of 1000$ for three years. All money from dividends will be reinvested for the duration of these 3 years. That's what's called a DRIP - Dividend Reinvestment Plan.
In the example above, I assume the share price remains the same after 3 years. So, what do we have? You invested 40k $ in 3 years and made, out of dividends, 5334$. That's a return of around 13.3% for the duration of your investment. Not great, not terrible.
Again, these are just examples; simulations and estimations. Nobody can guarantee anything when it comes to investing in the stock market. It can go up, it can go down, it can go sideways; nobody knows 100% what's going to happen.
So, coming back to the question in the title - "If I start investing in the stock market, will I be rich?" - chances are that you WILL NOT get rich, unless you have quite a lot of cash to start with or you have a lifespan of 200 years.
"Then, is it worth it?"
Only you can and only you should answer that question. Here's how I see it. Even if investing in ETF X or ETF Y won't get me to those 5+ million dollars, chances are the investment will have a positive return. And these positive returns will compund in time. Maybe I won't get to "enjoy" this money ... but it's an extra safety blanket, so to speak, in case of emergency and it can easily be passed on to my kid. Old money has to start somwhere, right? Be that person and maybe your great grandchildren will see a nice picture of you on a wall someday, thanking you (or not) for their luxorious life 😂😂
"Say I invest 100k $ dollars, tomorrow, in the stock market. What happens if there's a crash next month?"
One of the most important things is that you should always be aware that when you invest, you can lose all your money. In the stock market, there's a slim chance of that happening, but not 0. Also, you take a loss only when you sell your stocks. If you buy a stock at 100$ and tomorrow it drops to 50$, what's your loss? None, if you don't sell. You only make the loss when you buy high and sell low - the opposite of what profits are made of - buying low & selling high.
Also, if next week there's a crash in the stock market, that would be a great chance for people to buy valuable stocks really low. Think about it ... this is how some people got veeery rich. They bought immediately after a crash and sold for massive profits, a few years (or decades in some cases) later.
May all your investments yield great returns and I hope you get to be one of those people who actually buy a Lambo with their profits!
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