Financial Freedom: Can Playing the Stock Market Make You Rich?
Paul Elliott of The Motley Fool (www.fool.com) wrote in 2006:
If you had invested $2,000 in Pepsi in 1980 – and not another dime after – and reinvested dividends, you’d now have 2,800 shares worth more than $150,000.
If you’d invested $2,000 in Philip Morris in 1980, reinvesting dividends, you’d have more than 4,300 shares worth just under $300,000.
If you’d invested $2,000 in Johnson & Johnson in 1980, reinvesting dividends, you’d now have over 2,000 shares worth close to $140,000.
So can playing the stock market make you rich? Here are some of the major plusses of playing the market:
- If you time things perfectly (buy low, sell high!) and bet on a winner, you can make money.
- Historically, the stock market overall brings a return of 8% per year, which is higher than many other investments.
- The mainstream stockbrokers are required to document their work, so they are fairly transparent. This provides you with some protection against having someone abscond with your money.
- In the “Cash flow is queen” department, some stocks provide dividends, so if you have holdings, you may have some regular liquid return.
The stock market is a good illustration of how “it takes money to make money.” There are many ways to buy into the market with comparatively small amounts of money – mutual funds, for example – but you will also bring in a comparatively small return. If you go into the market with a great deal of money, you can diversify it well enough to ensure you’ll see that 8% annual return, and you should make a great deal more money. If not, the stock market may not be the investment vehicle that will take you to financial freedom. Stay tune for my next blog, where I’ll discuss some of the disadvantages of the stock market.
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