How to Make a Million Dollars in the Stock Market

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How to Make a Million Dollars in the Stock Market. One of the most attractive investments is the stock market. Since the NYSE opened, it has always gone higher. If you want proof, just look at the Dow Jones average--it's within percentage points of its all time high. And as America grows, businesses earn more, profits grow, companies grow and in what seems like a foregone conclusion, the market moves higher. Now here's how to make a million dollars.

Open an IRA or account that allows money to grow pre-tax. The government wants its people to be wealthy, which is why they've allowed people to open investment vehicles like IRAs that don't get taxed until you retire. If you own your own business, there are other versions of IRAs, which allow you invest even more money each year than if you are an individual.

Start early and invest often. The biggest proponent on your side is time. The longer you invest, the more money you will make. At about a 7 percent interest rate your money doubles every 10 years. Now, of course there are some years where you earn 12 percent on your money and others where you squeak out 2 percent. But it's all about the long-term picture.

Accumulate $75,000 by the time you are 28 years old. Following our example of money doubling every 10 years, this will give you about $1.2 million by the time you are 68 years old. Throw in whatever pension or 401(k) plan you accumulated during your working years, the average person would easily be able to retire in their mid-fifties. So the simple goal is to put aside $7,500 per year, or $625 per month or $20 per day. (Note that at current IRA limitations, you would have to open a separate brokerage account for $2,500 of the $7,500.)

Invest in the S and P index. Every money manager on Wall Street tries to beat the S and P. The S and P is an index that represents the broadest breath of the stock market and holds 500 of the top companies found in the US and abroad. So if the economy is flying, the S and P may earn 15 percent in a year. If we are in weak economic times, then it may only earn 3 percent. But since 1871, the S and P has returned an average of 9.4 percent (ahead of previously discussed projections.) And if you move forward in history that number gets as high as 13.4 percent per year from 1980 through 2005. (Which includes the dot-com bubble.)

Leave your money alone. Unless catastrophic events occur, the moral of the story is buy and hold. That's not to say that you should have some other money on the side that you invest more aggressively. But keep your original nugget of cash working on the side. Follow these steps and you'll easily make a million dollars in the stock market.

Tips & Warnings

  • If you are older than 28, simply adjust the formula to work for your age. For instance, if you are 38, try to put $50 a day aside. No small task I'm sure. But with a conservative 7.5 percent return estimate, you'll still have close to $750,000 by the time you are 68. And don't forget your near million-dollar stock portfolio doesn't include your home, pension or 401(k).

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