For many, putting money in the stock market remains a black box. You put money in and who knows–you could get lucky! It feels like a trip to Vegas, where you’ll probably leave disappointed but in rare cases you’ll come out with a few extra bucks and a satisfied smirk on your face.
In reality, investing in the stock market is simple, effective, and eventually quite boring. It’s a great way to get rich slowly, over the course of many years. But don’t confuse getting rich slowly with not getting rich at all. Take a look at the chart below, showing how $500 monthly contributions would grow over time.
The bottom, medium blue color is the $500/month amount, the top of the dark blue color is how much money you’d earn with typical stock market returns. Note that a) it’s way more money and b) the exponential nature of the cure–this deal gets sweeter over time!
So how do we realize these returns? By buying index funds like Vanguard’s Total Stock Market fund (VTI), which cover the entire stock market–that’s a slice of every single publicly traded company in the US all in a nice, $150 package.
Why everything? Can’t we do a little better than that? No we can’t. And people who try will fail in over 99 percent of cases, even if they do this for a living. I love the quote in that first reference: “Our central message is that trading is hazardous to your wealth”. This strategy is pretty basic, so do it yourself (I’m happy to help!); you don’t need a financial adviser.
Why does this strategy work? Because the stock market always goes up. Don’t believe me? Take it from these other guys: The Stock Market Always Goes Up. As an index fund owner, you’ve got hundreds of millions of people across thousands of companies working hard every day to make you rich! I’m not making this stuff up–this is how it works. You own the companies, they hire the employees, who work to make the company profitable. Did I mention you own the company? Congratulations, you’re the boss of everyone.
WOW! All of that is so exciting! It’s good to remind yourself of this stuff every once in a while, because in reality your investing should pretty much be on autopilot. Every month you make X dollars, spend Y dollars to live a happy, frugal-yet-fully-satisfied life, and you put X-Y dollars into an index fund. Rinse and repeat, month after month, year after year. Eventually, even a stock market crash won’t even get you riled up. And in a few years you’ll never need to work again. So I guess then things might get less boring!
The point is this: take an hour, maybe two, convincing yourself that the stock market always goes up and that trying to time the market is a useless pursuit. Then get started making regular investments–whether that’s in a regular brokerage account or a retirement account. And that’s it. Now you can be bored with investing for the rest of your life, allowing you to focus your energy on more important things! Running, perhaps?!