With the odds of winning the National Lottery just one in 45m, the chances of you becoming a millionaire from buying a ticket are extremely low. By contrast, the stock market offers the chance to generate high potential returns over the long run, thereby increasing your chances of making a million.
Furthermore, through buying shares when they’re attractively priced, holding them through a variety of market conditions and reinvesting dividends received, you may be able to increase your chances of enjoying a bright financial future.
While buying shares while they trade at low prices sounds rather obvious for any investor who’s looking to generate capital growth in their portfolio, doing so can be more challenging than it may first appear. After all, shares usually only trade on low valuations for good reason. This may be because of fears surrounding the prospects for the wider economy, or company-related concerns.
Either way, there’s likely to be a significant amount of uncertainty during the most opportune times to purchase shares. Being able to overcome them through focusing on company fundamentals and the long-term potential offered by a particular industry or economy may allow you to obtain more favourable purchase prices for the stocks you hold in your portfolio.
Holding for the long run
While buying low and selling high may be a worthwhile move for some investors, being able to achieve this goal on a consistent basis can be highly challenging. As such, it may be prudent for investors to instead aim to buy low and then hold for the long term.
Certainly, this may mean you fail to sell profitable holdings at their peak. It could also mean you experience challenging market conditions at times that cause paper losses in the short run.
But it can also mean that you are able to fully capitalise on bull markets which, as history has shown, often last longer than many investors anticipate. By holding shares through a variety of market conditions, you may be able to benefit from the generally-upward price movements which indices such as the FTSE 100 and FTSE 250 have shown during their histories.
Although it may be tempting to spend dividends on their receipt, reinvesting them is likely to be a better idea if you’re seeking to get rich and retire early. Reinvested dividends often form a significant proportion of the total returns generated in the stock market, since they allow the impact of compounding to take place.
With the FTSE 100 and the FTSE 250 offering a wide range of companies that have high yields compared to their historic averages, now could be a good time to purchase income shares. Through reinvesting the rising dividends received from them, you may be able to increase your chances of enjoying a bright financial future.
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Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.