How To Make $100,000 A Year Investing In The Stock Market

Many people would like to give up their day jobs, or give their boss the flick by trading or investing on the stock market.  But how realistic is this really?  One in four retirees are currently living below the poverty line in Australia, let alone other countries in the world where people are not always so lucky.

In this article I’m going to show you what it really takes to make $100,000 a year investing in the stock market, and how you can get there yourself.

Investing In The Stock Market: The Facts

First, let’s get real:  Some of the best investors in the world get consistent returns of around 20 to 30% per year.  If we study hard, find or create a solid plan for trading or investing, we might expect to get a consistent return of 20% a year.  Yes, this may be more for some talented investors and less for others, but for now let’s say 20%.

Alternatively if we invested in managed funds our return might be only 4% to 10%, and possibly less.

So if we’re getting a 20% return per year investing in the stock market, exactly how much capital would we need to make $100,000 a year? 

The answer: $500,000.  That’s right, $500,000 is the goose that lays you a $100,000 egg (not taking into consideration your tax situation of course).

Now, not everyone has $500,000 to throw around.  If that seems too much, here are the other facts:

  • With a 15% return we would need $670,000.
  • With a 25% return we would need $400,000. 
  • With a 30% return per year we would need $333,000
  • With a 40% return we would need $250,000 to yield $100,000 every year.

As we near retirement and have access to our Superannuation or 401k it is more realistic for some, but what about those years in the mean time?  It’s simple: here we can use the awesome power of compounding to help get us to our goal.  For those not familiar with compounding, this is when you get a return on your investment, and then re-invest your returns.  Your return starts our slowing but over time grows much more quickly.

Ok, So I Understand Compounding, But How Can I Do It?

If you earn 20% on your portfolio, put away $200 a week and re-invest your earnings, you could have $470,000 in your account within 12 short years.

If you put away $100 a week you could have $446,000 in 15 years time using compounding at 20%.  Or –

If you put away $50 a week, earn 20% and re-invest your earnings, you can still have $507,000 – it will just take you 19 years instead of 12.

But what happens if we cannot earn 20% per annum?  Maybe we earn 15% per annum?  We can still get there:  Putting away $100 a week and earning 15% p.a. compounded you could have $670,000 in 20 years. 

This is MUCH better than the proposed 40 to 50 years until retirement, and the retirement age is being pushed back more and more.  Taking control now may be a good option if you do not wish to be left behind.

If you don’t think your superannuation fund or managed funds will be able to perform to 15% p.a. then it may be a good time to learn how to invest.  No one is going to care as much about your money as you, and by learning a few principles of stock market investment you can significantly increase your odds of success.

Getting Started Quickly – Make Compounding Work For You

So there you have it.  I never said it would be easy.  It definitely isn’t a get-rich-quick scheme, but if you follow a few simple rules when investing, and do it regularly, your trip to financial freedom through investing in the stock market will be much shorter than most people.  After all, life is meant to be enjoyed!

What Would You Add?  How Else Can You Make $100,000 a Year In The Stock Market?

Leave your comments and experiences in the comments section below.

November 27, 2011  Tags: , , ,   Posted in: Articles On Building Wealth

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