Just read a report from The Montey Fool on 10 Steps to Making a Million Dollars in the Market. This report talks about what are the 10 steps to take so as to make a million dollars in the market. A catchy report title. Who does not want to earn a million dollars from the stock market?
Downloaded the report to read in details. There are some parts of the report which I agree and some I disagree which I shall share with you.
Just let me share in summary their 10 steps.
Step 1 – Start Now
Well the saying goes “If you don’t start now, when?”. The later you start your journey, the later you will get to make the one million dollars.
Step 2 – Spend Less Than You Earn
After the money is earned from the market, do not spend every cent! Re-Invest!
Step 3 – The Beauty of Tax-Free Status
In Singapore, money made from investments (via capital gain or dividends) are not taxable, make use of it.
Step 4 – Shares Beat Funds
Another way of what the title says, “forget about buying large funds, go for individual shares instead”.
Step 5 – You Can Beat a Flat Market
Within the report, they made a quick calculation on how to attain the one million dollars using an annual return of 15%. Sounds impossible? Well they also did put up a list of 10 shares that ballooned at least four-folds within the last 10 years.
Step 6 – Reinvest Your Dividends
While on your journey towards earning the one million, you have to keep reinvesting your dividends. This will shorten your journey through the power of compounding interest.
Step 7 – Think Different
Humans tend to see how the other investors are doing and try to copy their success. However, most of the times, these highly successful investors made it because of the opportunities during their period and these opportunities may have been different now.
Step 8 – Thinking Big While Investing Small
Do not always look for big shares. Sometimes it is worth to invest in companies with small market capitalisation.
Step 9 – Invest Long Term and Stop Over-Trading
Dealing charges for each trade you do will decrease your profits. Though not a lot but because of the effects of compounding, you will end up earning a few hundred lesser than what you suppose to have.
Step 10 – Hold Your Nerve
A sudden drop in share prices is common in a volatile market. So, just remember, do not panic sell when the share prices keep falling.
Let me start with what I agree:
- Starting early in your investment will never go wrong. Maybe I should not have use never, but chances are very slim. Just ensure that whatever you buy, you understand what the company is doing.
- Spendings does not have to increase when your earnings increase. Live within your means.
- Reinvesting dividends really helps in shortening your time to achieve your one million earnings.
- As investors, we often think ourselves as part-owners of the companies that we own shares in. If one keep changing their portfolio every year will only mean that you do not trust the companies at all. The direction or management does not change every year and thus the company’s fundamentals do not change that frequently also.
- Holding your nerve is really one hard thing to do. However, if you really trust the company’s fundamentals, you should be happy instead that you will be able to increase your portfolio since the price is lower now.
The writer used a table to tabulate the earnings that you will be able to achieve from year 1 to 19. However, if you look closer and analyse the numbers, you will realise that the one million in your closing valuation includes the amount you invested over the years.
Made my own tabulation and just a little change to the numbers. If you invest $10,000 annually, with 15% growth annually, you will make your one million dollars in the market on the 36th year.
Sounds long? Do not be sad. Our final objective in achieving financial freedom is to earn enough via annual dividends so that it would be enough to cover our annual expenses. Only with financial freedom, then we would be able to do whatever we like or enjoy without having to think about where our income is going to come from.
If you are interested in reading the report, you will be able to access the report here.