If you’ve ever watched a video on YouTube, you’ll probably have seen adverts where someone is trying to sell you a get-rich-quick-scheme course.
I have no issues with courses. And I don’t have a problem with getting rich quick either (not that I believe any of these course sellers can help you achieve those things).
But I do take issue with how these people promise you can make six figure incomes (or even millions) with very little work. Although I’m prepared to accept that a very small number of people may achieve such incomes, the masses won’t. And if something is being offered to the masses, then anecdotal ‘evidence’ just isn’t good enough. Further, everyone is in a different situation and can devote different amounts of money, time and resources. Can every person really make a six figure income?
Having said all this, a lot of people do ask me ‘how much should I invest on the stock market?’
Unlike the YouTube course sellers, I’m unwilling to pluck figures out from thin air and suggest anyone can make those returns. There are too many variables to consider and everyone’s ROI will differ from each other.
Some of these variables include:
How much is being invested in the first place?
How long is it being invested for?
How well is the stock performing?
Will a stock pay dividend? Or will any profits arise purely from capital gains?
Every time profit is made when the stock is sold, will everything from the sale be reinvested? Or just the initial amount? Or just the profit?
How actively are the stocks being managed? (People who actively trade can make a lot more money if they ‘recycle’ their money over and over again)
Which country is the investment being made in? The growth in share price is not uniform all over the world.
But you haven’t clicked on this article to read a ‘how long is a piece of string’ answer. So, really, how much should you invest?
I will answer this the only way I can – using real-life data.
UK investors
If you decide to invest in the British stock markets, then be advised that since the stock market began in the UK, it has returned an average of 7.5% per year. This is significantly more than what a savings account provides (even halal ones). It also beats inflation. Easily.
This is not a return that will make you rich quickly, but it will ensure your money is not eaten away by inflation. It will also mean you have a lot more money left over compared to leaving it in any bank and may very easily cover some regular expenses.
Let’s use some examples.
If you had £7,400 saved up, leaving it in a bank for one year may return something like £74. But investing that same money in the UK stock market will return £555.
£555 is an interesting figure because that’s how much you’ll be paying a year if you’re a coffee drinker- assuming you buy one cup of coffee on your way to work every day. (I’m assuming you’ll go to work for 10 months a year (I’m deducting two months a year (30 days annual leave and a further 30 days for Christmas, New Year, bank holidays, sick leave, non-Christian religious holidays, etc.).
So, if you have £7,400 lying around, you could decide to stick it in the stock market and let it pay for your coffee.
What about another recurring expense which is more costly…like fuel for your vehicle?
The average cost of fuel for your car will set you back £83 a month. To get stocks to cover your annual fuel bill, you’d have to tuck away £11,000 into the stock market. Comparatively, tucking £11,000 into a savings account might return something like £110 after a year.
If you’re a US investor, then the average annual returns are 10%.
The above examples assume you’ll be investing, rather than trading.
Trading involves using the same initial investment over and over again by buying and selling stocks multiple times. Usually, this results in far higher returns.
Investing, on the other hand, means the initial sum will be invested and left to grow over time.
Is it worthwhile investing with smaller sums of money?
Yes!
There are a few reasons for this. First, there will be a learning curve. Using smaller sums initially means when you make a mistake (and you’ll make plenty!), the amount you lose will not be big amounts. Second, like how a seed grows into a tree, a small sum can grow into a big sum using compounding by reinvesting the profits back in. Third, you may qualify for a dividend and therefore this will provide a bit more income to help with compounding.
There have been times when I’ve achieved a 10%+ return in a couple of hours (and there have been times when I’ve managed a tenth of that in a much longer time period). The unpredictability and the risk of the stock market is inherent.
There have been many occasions when one single trade has covered my monthly expense for coffee, council tax, or some other expense. And I’m not talking about earth-shattering amounts, either. Here's an example below of one of my trades, where I made enough to cover my monthly fuel bill in one trade in around two days:
Even an investment of $500 (about £450) could return you enough to pay for a monthly expense.
Sorry if these returns don’t set your world alight. But I hear there’s information on YouTube about how to make six figure sums with little or no work…
[By the way, if you’d be happy with modest but time-tested returns but feel there’s more to learn before you take the plunge, why not enrol on my 30 Day Trading Programme. It’s free and equips you with the knowledge and skills to get started]
Further reading:
Comments