Will I Be Rich One Day?

Will I Be Rich One Day? Everyone wants to have enough money to enjoy a comfortable lifestyle. There’s a difference between having enough money to enjoy life and being rich, though. Becoming rich requires a lot of discipline and knowledge.

No one can guarantee that you will be rich one day. But you can use the following advice to increase the chances that you grow your wealth.

Take a Long-Term Approach to Investing

The stock market’s performance varies from day to day. It can even fluctuate significantly from hour to hour. A lot of people are surprised to learn that these fluctuations don’t matter much.

Dips in the stock market will happen. You can count on that. Given time, though, markets have historically always recovered and created more wealth for those with a long term view.

You can look at the S&P 500 for a real-world example. From 1974 to 2016, the average annualized return was about 11.69%.

Consider how many scary things happened during those years. Some of the scariest moments include:

  • The 1973 oil crisis that contributed to a recession that lasted November 1973 to May 1975.
  • The 1981 to 1982 recession started by an energy crisis and the Iranian Revolution.
  • The Dot-Com Crash and September 11 terrorist attacks that contributed to a recession in 2001-2 and 2011 respectively.
  • The Great Recession that caused a 5.1% shrink in the economy from December 2007 to June 2009.

Even with all of these recessions and crises, the market on average gained over the long term. It pays to invest in high-performing stocks and ignore the ups and downs that happen along the way.

Putting money into the stock market can feel scary. You may even feel tempted to pull your money out during a future recession or depression.

Unless you’re near retirement, you must resist those feelings. If you sell your investments, then you lose the chance to earn money as they recover.

You may even end up rebuying the same stock at a higher price. That will only put you behind your plan to be rich one day.

Time in the Market Beats Timing the Market

Day traders and swing traders try to make money by taking advantage of short-term swings in the market. It isn’t impossible to make money as a day or swing trader, but it’s challenging to grow long-term wealth by following those strategies.

Instead, try the buy-and-hold method. Identify stocks that perform well, purchase what you can, and hold on to them for years.

This is the approach that the world’s best investors, like Warren Buffett, use. They don’t abandon companies for going through difficult times.

Instead, buy-and-hold investors see these as opportunities to purchase more stock at low prices. If the company has a history of success, it will usually rebound.

Instead of timing the market to make money from brief swings, dedicate yourself to time in the market so you can watch your investments grow.

Compounding Wealth Leads to Riches

Buy-and-hold investment strategies lead to compounding wealth. By leaving your money in the market, you avoid paying capital gains taxes on your investments. Eventually, you will probably have to pay some taxes on your investments. By delaying the tax burden, though, you have more money to invest.

Keep in mind that investments grow exponentially. Paying $1,000 in taxes today doesn’t mean that you lose $1,000 of your investment. If you kept that $1,000 in your investment portfolio for a decade, it could very possibly grow to $1,600 over a decade.

By paying taxes, you might write a check for $1,000, but you actually lose the opportunity to earn $600. It makes more sense to leave your investments where they are so you can benefit from compounding growth.

Dividends Can Make You Rich

If you want to become rich one day, buy stock in companies that pay dividends. Professor Jeremy Siegel from the Wharton School’s Finance Department has done research showing that as much as 95% of stock market gains over the last century has come from dividend reinvestments.

Capital gains from rising share prices can build wealth, but reinvesting your dividends is the most effective way to get rich.

Note that you must reinvest the dividends to grow your wealth as quickly as possible. It’s tempting to take cash dividends and use them to lead a more comfortable life. If you take the cash now, you sacrifice your future wealth.

By reinvesting dividends, you add to the amount of stock you own. In the long run, that means you will have more investments working to grow your wealth without any active management.

Not all companies pay dividends to investors, so you need to do some research before you buy stock. Some companies to look at include:

As more companies open themselves to public trading, you may want to learn more about their policies to determine whether you want to buy their stock. If they promise to pay dividends, give them more consideration.

Reinvesting that money is one of the most effective things you can do to build wealth without putting your income at risk.

Will I Be Rich One Day?

No one can guarantee that you will be rich one day. Research and listening to financial experts can help you build wealth. But luck also plays a role in how much money you earn from your investments. Few financial advisors want to talk about the role of luck, but it’s there.

You can’t control everything, so focus on the things that you know you can do to improve your financial position. As long as you follow the above advice, you will increase your chances of getting rich. With some luck on your side, you could certainly reach that goal.

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