Investing in stocks can make you a millionaire, provided you follow the necessary steps. These include investing regularly, picking good quality stocks, and most importantly playing the long-term game rather than trying to make a million in months or a couple of years.
Investing not only helps you to grow your money but also makes you financially free in the future. Investing is important for every individual to retain their earned money and also grow it. If you keep your hard-earned money idle, it will lose its purchasing power due to inflation. Therefore, it is necessary to invest and diversify your investments to keep the risk low and increase your returns.
It is possible to become a millionaire by investing in stocks, but you will have to do this consistently over a long period of time in order to achieve your desired benchmark.
Investing in stocks is the best way to beat inflation and increase your money at the best possible rate. The key to getting good returns is to invest in good companies and to do it regularly. It also requires you to stay invested for a long time. Investing is never about a get-rich-quick scheme. Instead, you can get wealthy by investing small amounts at periodic intervals, over a long period of time. Rakesh Jhunjhunwala, Warren Buffet, Radhakishan Damani, are live examples of successful stock investing.
There are some key elements that you should keep in mind while investing in stocks, they are
1. Invest in good and fundamentally strong companies
This is the most valuable lesson when it comes to stock investing. If you follow this, you are set to become a successful investor. Many cheap penny stocks look like a bargain but remember they are cheap for a reason. Have you ever seen top companies like TCS, Nestle, or Reliance trading below Rs 50 or Rs 100? The answer is definitely No. Good companies won't trade at single or double digits because buyers are willing to offer a higher price for the stocks. Penny stocks may go up 50 to 100% in a very short period of time but they eventually come down in a similar fashion. Buying good companies will ensure that your capital stays protected and you also receive regular dividends as an added bonus.
2. Diversify your portfolio and invest regularly
Diversification is important to mitigate your downside risks and also to get regular returns in the process. Diversification essentially means investing your money in different asset classes like equity (stocks), debt (bonds), cash (fixed deposits), etc.
Making regular investments is equally important to get wealthy in the future. SIPs (Systematic Investment Plans) help you to get an average cost for your assets so that you get better returns than lump-sum investing.
To conclude, investing small sums over a sustained period can make you a millionaire. The key is to start early and let compounding perform its job. You can invest as low as Rs 15,000 per month and get to $1 million or Rs 7.3 crores in approximately 27.5 years at a 15% annualized return. But if you bump up your initial contribution to Rs 30,000, you can achieve the same mark in just 23 years. This shows that investing is not that difficult and one can simply invest in an Index fund and beat inflation by a broad margin and enjoy the returns of good quality stocks collectively.