How much can you expect to make investing in the stock market?

Anything is possible. It’s whether it’s realistically probable that makes investing reality! So how much can you realistically expect to make investing in the stock market?

Investing In The Stock Market

I’ve seen clients makes thousands of percent on single trades. I’ve also seen clients wipe their accounts out on a single trade. The stock market is where dreams are made, and it is the hope of making money that continually drives investors to put their hard earned cash into the markets. A quote I heard a long time ago sums it up: “The stock market is the hardest way to make an easy dollar”.

Stock Market Beginners Expectations

Unfortunately, most beginners have an unrealistic expectation of what is achievable. My approach is to establish a realistic expectation based on historical market performance, the amount of capital intended to be used, and the frequency the trader expects to buy and sell. From this point, I can create a benchmark of performance, and from there my goal is to outperform my expectations.

Take Control of your Financial Future

If you want to take control of your financial future, then you will most definitely want to consider investing in the stock market. On average, the Australian Stock Exchange (ASX) has outperformed all other investments. However, the recent Global Financial Crisis (GFC) in 2007/08 which saw the ASX plummet approximately 55% between the peak in November 2007 and the bottom in March 2009, has had a direct impact on the investment performance of stocks.

The following tables outline the long-term performance of the major investment medians available to the average Australian:

Australian Stock Market Long Term Investment 2011

Table: Long-term investment to December 2011

Source: http://www.asx.com.au/documents/products/ASX_Report_2012.pdf

Australian Stock Market Long Term Investment 2010

Table: Long-term investment to December 2010

Source: http://www.asx.com.au/documents/resources/russell_asx_long_term_investing_report_2011.pdf

The best performance return was in Australian Shares over a 20 year period up to the end of December 2010, coming in at 11.0% (on average) per annum. In normal ‘booming’ markets, investing in stocks far outweighs Residential property. Both medians have suffered a weaker economy and poor sector performance over the last several years.

Buy and Hold Strategy

But these results are merely a reflection of a simple Buy and Hold strategy. Or what I like to call ‘Hope and Pray’, as your performance is based on how well the broad stock market performs.

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For the savvy investor, there are strategies you can adopt that can benefit from various other movements in the markets. One of the more commonly implemented strategies is the Buy Write, otherwise referred to as the Covered Call.

Covered Call – Buy Write Strategy

According to the Australian Stock Exchange (ASX), between April 2005 and December 2011, the Buy Write strategy outperformed investing in shares alone by 7.25% on an annual basis. (Source: http://www.asx.com.au/documents/professionals/Buy_Write_Encyclopaedia_August_2012.pdf)

Short Term Trading

Short-term trading, whether that is in stocks, options, futures or currency, can produce high returns. This is what attracts those investors who are after fast money – a quick return. But in the 15 years experience that I’ve had in the markets, I have met very few traders who can consistently produce returns in short-term trading.

Consistency

How much you can make investing in the stock market will be determined by numerous factors, and the key to success is consistency. First you need to establish a benchmark, and then to manage your investment/s in a fashion to achieve those goals.

Long-term investment

Longer-term investment approaches are best suited to a consistent return. But they don’t provide the high percentage returns that so many investors desire. Hence, it is finding the balance between return, time, and risk in developing your investment approach that defines success in the markets.

You might also find our how to buy shares article relevant for you to get started.

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Since 1998, Matthew has been involved in the Financial Services industry providing stock, option and CFD advisory services, trading advice, funds management and education services. Matt is an Authorised Representative of Halifax Investment Services, providing analysis and recommendations for trading Covered Calls in the US markets and using Exchange Traded Funds (ETFs) ...
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