If you want to get rich with stocks, you’re not alone — and you have a reasonably achievable goal, too, because the stock market is one of the best ways to build wealth over the long term, if not the best way.
You might still need a few specific pointers, though, so here are three investments that can help your portfolio grow faster.
1. Invest in index funds
First, make it easy on yourself by investing in index funds. They’re mutual funds (or their cousins, exchange-traded funds (ETFs)) that are passively managed, simply holding the same securities that are in a particular index, allowing the fund to deliver roughly the index’s return, less fees. (And index funds tend to sport very low fees.)
So consider that the stock market’s long-term average annual return is close to 10%. Parking much (or all) of your long-term dollars in, say, an S&P 500 index fund will get you returns very close to those of the S&P 500, an index that includes 500 of America’s biggest companies and encompasses about 80% of the value of the entire U.S. stock market.
Index funds are hard to beat — figuratively, because they’re so easy to invest in, and literally, because most actively managed stock mutual funds underperform their benchmark indexes. If you want to amass significant wealth but don’t want to study investing and make lots of buy-and-sell decisions on your own, just stick with index funds.
2. Invest in stocks you choose yourself
If you do have the time and interest in becoming a better investor, shooting for above-average returns, you might add some or a lot of individual stocks to your mix. You can keep some or much of your long-term dollars in index funds and simply add on to that, or you can put much of your money in individual stocks.
You might decide to be primarily a value investor, or a growth investor, or you might aim for the best of both worlds, seeking undervalued growth stocks. Don’t put too much of your money in any one or a few stocks, though, because even seemingly wonderful businesses can falter, and you don’t want all your eggs in just a few baskets. The less you know about investing, and the less confidence you have, the more you should diversify.
Our Motley Fool investing philosophy recommends that you buy into at least 25 different stocks, while planning to hold them for at least five years. Doing so can reduce your risk and increase the chance that you’ll have selected one or more companies that turn out to be terrific performers. It will also give them time to perform. (Many people just get impatient and sell out of great stocks if they don’t zoom upward within a few months. Plan to be patient.)
3. Invest in learning
Finally, for best results, don’t just learn the basics about value and growth investing. Commit to being a lifelong learner about investing. It can help you get better and better at it over time.
What should you read? Well, if you’re going beyond index funds into individual stocks, read at least the quarterly and annual reports of your companies — and, ideally, read up on news about the companies, too, from time to time. You don’t want to end up surprised if they change direction or become less promising.
Beyond that, read about great investors and their strategies. Read about great businesses and how they became great — that can help you learn to spot other great businesses in which to invest. Reading even more broadly, about science, history, psychology, economics, and more, can also make you a savvier investor, with insights into how investors in the stock market might behave and how consumers might behave, as well.
Any of these investment ideas can help you amass much more money than you otherwise would. Acting on all three of them might maximize your returns — but just parking most of your hard-earned dollars in one or more good index funds can be all you need to grow your money powerfully over many years.