There’s a way to become a millionaire before retirement without fail. This may sound like financial hogwash, but investing in the stock market can help to fulfill this dream.
The stock market is a roller coaster of opportunity. It has dips and stomach-churning drops, but with every loss comes an inevitable climb. Understanding what this roller coaster entails is no easy feat, but learning how to ride it safely is an even greater challenge. Despite this, it isn’t impossible to come out victorious and create a net-positive gain. There are ways to build a quick fortune on the stock market, but strategies like that are better left to the professionals. For the common citizen, the stock market should be tackled with a safer approach. This tactic involves patience, keeping calm, starting early, and diversifying.
A beneficial forewarning for the stock market is that it is impossible to guarantee positive results. There isn’t a foolproof way to “win” the stock market. There are ways to amplify one’s chances of success by becoming knowledgeable on the subject, but it is impossible to know what the next day of the stock market brings. This uncertainty is why it is important to be patient. Stocks drop often, and another economic recession will inevitably happen. Kevin Busse, the economics and AP macroeconomics teacher at Cass High School, explains, “There could be [a recession] this year. We spend a lot, we put a lot on our credit card, we borrow too much, we buy too big a house or two, we buy a big car, and [then], as a nation, we look at our bills and say, ‘Wow, we can’t afford it.’ … If the nation does that as a whole, then you go into a recession.” A plethora of events can cause a recession, and so a recession often comes without warning. These negative events may seem too overwhelming to overcome, but it is important to realize that the stock market has trended upward. It is comparable to a mountain; there are the occasional downhill slopes when scaling the mountain, but the overall trajectory is towards the top.
There are often times when investments will not pan out. In these moments of peril, it’s important to just breathe and be patient. Busse elaborates, “You can lose 10% or 20% of your money in less than a year, but you’ve made a lot of money in the past. You just gave a little back. If you hold on, [the economy] will come back and you’ll make more money. You have to be patient.” The fastest way to “lose” the stock market is to lose resolve and sell all of the stocks invested in. Doing this will make the stockholder miss out on the end reward the stock market is famous for: an oscillating monetary gain.
The effect patience has on furthering one’s monetary gain in the stock market is directly correlated with time. Having patience for a longer period is the key to becoming a millionaire by retirement age. Busse claims, “If you start at 22 and you retire at 66, you’ll [become a millionaire] by investing a little bit of money out of every paycheck until you retire.” Investing a little bit every paycheck until retirement is how compound interest is built up. Busse explains, “Compounded interest is the magic. Your interest makes interest on the interest on the interest.” Compound interest starts the snowball effect of financial success, and it shouldn’t be taken lightly.
Sometimes, an individual stock can plummet and leave the stockholder with zero return. This is an example of why it is good to diversify. To diversify is to buy stocks in a variety of different assets to lower the chance of losing money. Busse exemplifies, “You don’t want to put all your eggs in one basket, so if you spread out your risk in the different areas, like buying some banking stocks, some technology stocks, some retail stocks, or some oil stocks, and you spread it all out, then overtime, the stock market is always [going] up.” If somebody invested $10,000 into one stock versus investing into 11 different stocks, the chances of that single stock plummeting and leaving the investor with a negative gain is higher than multiple stocks plummeting in sync. Don’t be swayed by the allure of any single stock–they should instead diversify and let their portfolio grow steadily over time.
Making these economic decisions can be time-consuming, tedious, and stressful, so it is a good idea to consider investing in a mutual fund. Busse states, “The mutual fund is a business, and all they do is work for me to do the homework. I don’t have the time to buy the best stocks and sell the worst stocks. They manage the money and in a mutual fund, you could have hundreds of stocks.” Mutual funds diversify and make decisions automatically, giving the investor peace of knowing that the difficult decisions were made for them and eliminating much of the risk. Busse elaborates, “When my mutual fund goes up, it’s because the average of all those hundreds of stocks has gone up.” Investing in mutual funds is part of the puzzle to achieving financial security.
The stock market might be an important investment opportunity to dive into, but retirement is a while away for the students of Cass High School. It is highly beneficial to think towards the future, but it is even more so to think about the next few years after graduation. Determining what career path to take is the most important decision to make after high school. Busse says, “You need to decide whether you want to go to Georgia, Georgia Tech, Kennesaw, Chattahoochee Tech, or if you want to get an apprenticeship with a plumber or HVAC. Develop your skills so that you can get the best job possible. Get your on-the-job training or your education.” It’s important for students to focus on building a strong foundation for their future by exploring their interests, developing valuable skills, and making informed decisions about their education and career paths, because it is this foundation that their future builds upon.
Thinking about the future can feel impossible, but taking reign on the future isn’t impossible. Start thinking now, because the future will become the present in an instant.