Investing in the stock market often conjures up images of risk and difficulties for many people. It is sometimes seen as a pursuit that is best left to the professionals, since there is a chance of losing significant sums of money.
While there is risk in buying shares, this can be significantly reduced by following a few simple steps. Likewise, it is possible to generate market-beating returns through a straightforward strategy that focuses on long-term value, rather than short-term volatility.
As a result, it may be possible to build a substantial nest egg in order to retire early. This could be a significantly better opportunity to improve your financial future when compared to the one-in-45m chance of winning the lottery.
Opening a share-dealing account is simple, with it often taking minutes to complete online. Furthermore, there are minimal administration costs among some share-dealing providers – even among Stocks and Shares ISAs. As such, being in a position to buy shares, in terms of opening an account, is highly accessible to a wide range of individuals – no matter what their experience level or how much they have available to invest.
Building a portfolio
Of course, deciding which shares to buy can prove to be a challenge in some respects. With such a wide range of options across the FTSE 350, it can be difficult to determine which companies offer the best long-term growth outlooks.
For new investors, a tracker fund may be a good place to start. Its aims to mimic the returns of an index, such as the FTSE 100, with its fees often being below 0.2% per annum and offering a significant amount of diversity.
For larger investors, or those with a little more experience, beating the stock market may be a simpler process than it first appears. Investors such as Warren Buffett have simply purchased companies with strong fundamentals, in terms of their balance sheets and economic moats, while they trade at relatively low prices. Through holding such companies for the long run, the total returns on offer could prove to be exceptionally high.
Maintaining your investments
While it is tempting to buy and sell shares whenever a profit is made, allowing your best performers to run could be a worthwhile strategy. After all, if they are delivering on their strategy and have scope to growth further, their share prices may continue to rise.
Clearly, having a diversified portfolio is key to reducing risk. This could mean that you aim to hold stocks that operate in different regions, as well as in various market segments. In doing so, you reduce the amount of company-specific risk, which makes a disappointing period for a specific business less impactful on your wider portfolio.
Of course, building a nest egg for retirement is likely to take many years. But through generating high returns over a sustained time period which benefit from compounding, it may be simpler than you think to get rich and retire early.
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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.