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- How to Accumulate Wealth in the Long Run
Almost everyone I know invests in the stock market, but I only got to learn about it (and start investing) at the age of 23!
Do I wish I had started earlier? You bet. Because each year matters when investing in the stock market. Compound interest. That’s the beauty of it.
And I don’t want you to wait as long as I did. So let’s start now.
Why invest in the stock market?
In my opinion, it is one of the safest investments to accumulate wealth over the years.
Historically, the stock market has delivered an average annual return of around 7-10% over the long term. LONG TERM. That’s the keyword here.
If you want to accumulate wealth quickly, then stop reading.
Investing in the stock market requires you to invest long term, I’d say a minimum of 7-10 years. Decades is even better.
Did you know that Warren Buffet made his first investment at the age of 11? He never stopped investing since then.
If and when I have kids, I’ll make sure to invest in the stock market the moment they are born.
Is it risky to invest in the stock market?
Every type of investment comes with risk. That’s just the nature of it. You should decide what kind of risks you are willing to take in life.
The best way to lower your risk when investing in the stock market is to:
Invest in ETFs (Exchange-Traded Funds) rather than picking stocks
ETFs are a pool of companies you invest in, instead of investing in one company.
Let me simplify it: think of a fruit basket. Instead of only investing in apples, you can invest in a basket with apples, oranges, blueberries, strawberries, pomegranates, mangos, kiwis, and pineapples. If oranges get bad, you still have the other fruits. Even if oranges, apples, blueberries, and pineapples get bad, you still have strawberries, pomegranates, kiwis, and mangos.
It’s very difficult to lose when investing in ETFs. The whole world should stop running as it currently does for you to lose all your investment in the long term. That’s why diversification is key when investing.
However, keep in mind, there will be positive and negative years when investing, even in ETFs. The key is to hold on to your stocks and not to sell.
The downside of investing in ETFs?
You don’t really have a say on which companies you are investing. For example, maybe you are not a fan of mangos, but you will still be investing in them.
Only invest money you are comfortable losing
This is a general rule I follow when investing. Be willing to invest only money you are willing to lose. Sure, you are risking less like that, and your opportunities to earn are lower, but you also are safer. Depends on what kind of person you are: high risk - high reward - potential high downside, or low risk - low/medium reward - potential low/medium downside. I choose the safe option.
Do you need to have lots of money to start investing?
No. I started investing with only 25 €/month. I was new to the space, I didn’t have much savings, and I wanted to learn more about the topic to feel comfortable investing more. Obviously, 25 €/month won’t accumulate you wealth, but it will make you start. And starting is usually the most difficult part. You can always increase the amount you invest later on.
Is it difficult to start investing?
No. And that’s the great part about it.
I have everything automated for me, so I don’t even think about my investment. Here’s how:
Decide on the amount you are willing to invest every month.
Decide on the ETFs you want to invest your money into. S&P500 is a famous one, but you should make your own choice.
Set up a monthly recurring transfer from your bank account to your broker account.
Set up automatic recurring monthly investments in your broker account. You can also decide to separate your monthly investment amount into bi-weekly investments - it’s up to you.
How to put this information into practice?
If you are based in Europe:
Open an N26 bank account (aka my fav online bank). Here are the countries where you can open an N26 account. Your current bank account works fine too.
Use my referral link to set up your N26 account and receive €25.
Set up monthly recurring transfers to your broker account.
I use TradeRepublic as my broker account as I find it very intuitive and user-friendly. Also, it offers a 2% interest rate on cash. Bonus point: it is founded by a CDTM alumnus.
Find the ETFs you want to invest in and automate your investment process. It’s that easy.
Use my referral link to set up your TradeRepublic account and receive €25.
If you are based in the US:
Open a Sofi bank account. Your current bank account works fine too.
Use my referral link to set up your Sofi account and receive $275.
Set up monthly recurring transfers to your broker account, Robinhood.
Use my referral link to set up your Robinhood account and receive $5-$200 worth of fractional shares from America’s leading companies.
Books I recommend to get started
Financial Feminist: Overcome the Patriarchy's Bullsh*t to Master Your Money and Build a Life You Love - Tori Dunlap
Rich Dad Poor Dad - Robert T. Kiyosaki
The Psychology of Money - Morgan Housel
The Millionaire Next Door - Thomas J. Stanley & William D. Danko
Social media accounts to follow
Disclaimer: I am not a certified financial advisor, so please make your own decisions with your money. I am sharing with you what works best for me, and the knowledge I have accumulated throughout the years.