Formula for estimating amount needed to become full-time stock market investor
You can't get there from here.  This isn't the right data.  Consider the following five-year history:  2%, 16%, 32%, 14%, 1%.  That would give a 13% average annual return.  Now compare to -37%, 26%, 15%, 2%, 16%.  That would give a 4% average annual return.   Notice anything about those numbers?  Two of them are in both series.  This isn't an accident.  The first set of five numbers are actual stock market returns from the last five years while the latter five start three years earlier.  The critical thing is that five years of returns aren't enough.  You'd need to know not just how you can handle a bull market but how you do in a bear market as well.  Because there will be bear markets.   Also consider whether average annual returns are what you want.  Consider what actually happens in the second set of numbers:   But if you had had a steady 4% return, you would have had a total return of 21%, not the 8% that would have really happened.  The point being that calculating from averages gives misleading results.  This gets even worse if you remove money from your principal for living expenses every year.   The usual way to compensate for that is to do a 70% stock/30% bond mix (or 75%/25%) with five years of expenses in cash-equivalent savings.  With cash-equivalents, you won't even keep up with inflation.  The stock/bond mix might give you a 7% return after inflation.  So the five years of expenses are more and more problematic as your nest egg shrinks.  It's better to live off the interest if you can.  You don't know how long you'll live or how the market will do.   From there, it's just about how much risk you want to take.  A current nest egg of twenty times expenses might be enough, but thirty times would be better.  Since the 1970s, the stock market hasn't had a long bad patch relative to inflation.  Maybe you could squeak through with ten.  But if the 2020s are like the 1970s, you'd be in trouble.
"The S&P 500 index is maintained by S&P Dow Jones Indices, a division of McGraw Hill Financial. Changes to the index are made periodically, as needed.  For Facebook, you'll find it mentioned in this December 11, 2013 press release (PDF).  Quote: New York, NY, December 11 , 2013 – S&P Dow Jones Indices will make the following changes to the S&P 100, S&P 500, MidCap 400   and S&P SmallCap 600 indices after the close of trading on Friday,   December 20: You can find out more about the S&P 500 index eligibility criteria from the S&P U.S. Indices methodology document (PDF).  See pages 5 and 6: Market Capitalization - [...] Liquidity - [...] Domicile - [...] Public Float - [...] Sector Classification - [...] Financial Viability - Usually measured as four consecutive quarters of positive as   reported earnings. [...] Treatment of IPOs - Initial public offerings should be seasoned for 6 to 12 months   before being considered for addition to an index. Eligible Securities - [...]   [...]   Changes to the U.S. indices other than the TMIX are made as needed,   with no annual or  semi-annual reconstitution. [...] LabCorp may have a smaller market cap than Facebook, but Facebook didn't meet all of the eligibility criteria – for instance, see the above note about ""Treatment of IPOs"" – until recently. Note also that ""Initial public offerings should be seasoned for 6 to 12 months"" implies somebody at S&P makes a decision as to the exact when. As such, I would say, no, there is no ""simple rule or formula"", just the methodology above as applied by the decision-makers at S&P." Your plan won't work. Working 40 hours a week at federal minimum wage (currently $7.25 / hr) for 52 weeks is an annual income of just over $15,000. Even assuming you can reliably get a return of 15% (which you definitely can't), you'd need to start with $100,000 of assets to earn this poverty income. Assuming a more reasonable 7% bumps the required assets up to over $200,000, and even then you're dead the first time you need to make withdrawals after a mistake or after a major market downturn. As a fellow math Ph.D. student, I know your pain. I, too, struggled for a while with boredom in an earlier career, but it's possible to make it work. I think the secret is to find a job that's engaging enough that your mind can't wander too much at work, and set aside some hobby time to work on interesting projects. You likely have some marketable skills that can work for you outside of academia, if you look for them, to allow you to find an interesting job. I think there's not much you can do besides trying not to get fired from your next McJob until you can find something more interesting. There's no magic money-for-nothing in the stock market. It depends on how much you save, how much your savings earns each year.  You can model it with a very simple spreadsheet:  Formula view:  You can change this simple model with any other assumptions you wish to make and model. This spreadsheet presumes that you only make $50,000/year, never get a raise, that your savings earns 6% per year and that the market never has a crash like 2008. The article never states the assumptions that the author has made, and therefore we can't honestly determine how truthful the author is.  I recommend the book Engineering Your Retirement as it has more detailed models and goes into more details about what you should expect. I wrote a slightly more detailed post that showed a spreadsheet that is basically what I use at home to track my retirement savings. "My answer is Microsoft Excel.  Google ""VBA for dummies"" (seriously) and find out if your brokerage offers an 'API'.  With a brief understanding of coding you can get a spreadsheet that is live connected to your brokers data stream.  Say you have a spreadsheet with the 1990 value of each in the first two columns (cells a1 and b1).  Maybe this formula could be the third column, it'll tell you how much to buy or sell to rebalance them.   then to iterate the rebalance, set both a2 and b2 to =C1 and drag the formula through row 25, one row for each year.  It'll probably be a little more work than that, but you get the idea." The goal of the kelly criterion strategy is to find a balance between preservation of starting capital and returns. One of extreme you could bet the entirety of your account on one trade, which would maximize your returns if you win, but leave you unable to further invest if you lose. On the other extreme, you could bet the smallest amount of capital possible over the course of several trades to increase the probability that you'll even out to 70% accuracy over time. But this method would be extremely slow.  So for your case, investing 40% each time is one way to find an optimal balance between these two extremes. Use this as a rule of thumb though, because your own situation and investing goals may differ from the goal of  optimal growth. Here are the SEC requirements: The federal securities laws define the term accredited investor in   Rule 501 of Regulation D as: a bank, insurance company, registered investment company, business development company, or small business investment company; an employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if a bank, insurance company, or   registered investment adviser makes the investment decisions, or if   the plan has total assets in excess of $5 million; a charitable organization, corporation, or partnership with assets exceeding $5 million; a director, executive officer, or general partner of the company selling the securities; a business in which all the equity owners are accredited investors; a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the   purchase, excluding the value of the primary residence of such person; a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for   those years and a reasonable expectation of the same income level in   the current year; or a trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes. No citizenship/residency requirements. Illustrating with a shorter example:  Suppose I deposit 1,000 USD. Every year I deposit another 100 USD. I want to know how much money will be on that savings account in 4 years.  The long-hand calculation is Expressed with a summation  And using the formula derived from the summation (as shown by DJohnM) So for 20 years Note in year 20 (or year 4 in the shorter example) the final $100 deposit does not have any time to accrue interest before the valuation of the account. Thanks to this youtube video I think I understood the required calculation. Based on following notation: then the formula to find x is: I found afterwards an example on IB site (click on the link 'How to Determine the Last Stock Price Before We Begin to Liquidate the Position') that corroborate the formula above. "To my knowledge, there's no universal equation, so this could vary by individual/company.   The equation I use (outside of sentiment measurement) is the below - which carries its own risks: This equations assumes two key points: Anything over 1.2 is considered oversold if those two conditions apply.  The reason for the bear market is that that's the time stocks generally go on ""sale"" and if a company has a solid balance sheet, even in a downturn, while their profit may decrease some, a value over 1.2 could indicate the company is oversold. An example of this is Warren Buffett's investment in Wells Fargo in 2009 (around March) when WFC hit approximately 7-9 a share.  Although the banking world was experiencing a crisis, Buffett saw that WFC still had a solid balance sheet, even with a decrease in profit.  The missing logic with many investors was a decrease in profits - if you look at the per capita income figures, Americans lost some income, but not near enough to justify the stock falling 50%+ from its high when evaluating its business and balance sheet.  The market quickly caught this too - within two months, WFC was almost at $30 a share. As an interesting side note on this, WFC now pays $1.20 dividend a year.  A person who bought it at $7 a share is receiving a yield of 17%+ on their $7 a share investment. Still, this equation is not without its risks.  A company may have a solid balance sheet, but end up borrowing more money while losing a ton of profit, which the investor finds out about ad-hoc (seen this happen several times).  Suddenly, what ""appeared"" to be a good sale, turns into a person buying a penny with a dollar.  This is why, to my knowledge, no universal equation applies, as if one did exist, every hedge fund, mutual fund, etc would be using it. One final note: with robotraders becoming more common, I'm not sure we'll see this type of opportunity again.  2009 offered some great deals, but a robotrader could easily be built with the above equation (or a similar one), meaning that as soon as we had that type of environment, all stocks fitting that scenario would be bought, pushing up their PEs.  Some companies might be willing to take an ""all risk"" if they assess that this equation works for more than n% of companies (especially if that n% returns an m% that outweighs the loss).  The only advantage that a small investor might have is that these large companies with robotraders are over-leveraged in bad investments and with a decline, they can't make the good investments until its too late.  Remember, the equation ultimately assumes a person/company has free cash to use it (this was also a problem for many large investment firms in 2009 - they were over-leveraged in bad debt)." Let's suppose your friend gave your $100 and you invested all of it (plus your own money, $500) into one stock. Therefore, the total investment becomes $100 + $500 = $600. After few months, when you want to sell the stock or give back the money to your friend, check the percentage of profit/loss. So, let's assume you get 10% return on total investment of $600.  Now, you have two choices. Either you exit the stock entirely, OR you just sell his portion. If you want to exit, sell everything and go home with $600 + 10% of 600 = $660. Out of $660, give you friend his initial capital + 10% of initial capital. Therefore, your friend will get $100 + 10% of $100 = $110. If you choose the later, to sell his portion, then you'll need to work everything opposite. Take his initial capital and add 10% of initial capital to it; which is $100 + 10% of $100 = $110. Sell the stocks that would be worth equivalent to that money and that's it. Similarly, you can apply the same logic if you broke his $100 into parts. Do the maths. I hope that there are no significant differences between the things you list once the formulas for compounding interest are understood. I will, again, lay out these formulas below.  First, definition of the variables: R means Total Return ratio. The sum of all money you get, both dividends (or interest payments) and return of initial capital.  I is a ratio. It is the percent (10.4%) divided by 100 (0.104) then added to one (1.104). P means the number of periods in which the interest rate is paid and compounded.  R = I^P I = R^(1/P) P = log(R) / log(I)  Once you have R you multiply it by the amount of your initial investment to find out how much total money is returned.  For simplicity the following amounts are approximate: 2 = 1.104^7 1.104 = 2^(1/7) 7 = log(2) / log(1.104)  So to double your money in seven years you need a yearly interest rate of 10.4, if compounded yearly. Hey Sheehan, I believe Schwab provides this info.  None of the online free portfolio managers I know of gives you this info.  The now defunct MS Money used to have this. The best thing to do is to use a spreadsheet.  Or you could use the one I use.  http://www.moneycone.com/did-you-beat-the-market-mr-investor/ . (disclaimer: that's my blog) "First, you need to figure out what your objectives for the money are.  Mostly, this boils down to how soon you are going to need the money.  If you are, as you say, very busy and you don't need the money until retirement, I'd suggest putting your money in a single target date fund, such as the BlackRock LifePath fund.  You figure out when you are going to retire, and put your money in that fund.  The fund will then pick a mix of stocks, bonds, and other investments, adjusting the risk for your time horizon. Maybe your objectives are different, and you want to become an trader.  You value being able to say at a BBQ, ""oh, I bought AAPL at $20"", or ""I think small caps are over valued"".  I'd suggest you take your $50,000, and structure it so you invest $5,000 a year over 10 years.  Nothing teaches you about investing like making or losing a bit of money in the market.  If you put it all in at once, you risk losing it all - well before you've learned many valuable lessons which only the market can teach you. I'd suggest you study the Efficient-market hypothesis before studying specific markets or strategies." "It is great that you want to learn more about the Stock Market. I'm curious about the quantitative side of analyzing stocks and other financial instruments. Does anyone have a recommendation where should I start? Which books should I read, or which courses or videos should I watch? Do I need some basic prerequisites such as statistics or macro and microeconomics? Or should I be advanced in those areas? Although I do not have any books or videos to suggest to you at the moment, I will do some more research and edit this answer. In order to understand the quantitative side of analyzing the stock market to have people take you serious enough and trust you with their money for investments, you need to have strong math and analytical skills. You should consider getting a higher level of education in several of the following: Mathematics, Economics, Finance, Statistics, and Computer Science.  In mathematics, you should at least understand the following concepts: In finance, you should at least understand the following concepts: In Computer Science, you should probably know the following: So to answer your question, about ""do you need to be advanced in those areas"", I strongly suggest you do. I've read that books on that topics are such as The Intelligent Investor and Reminiscences of A Stock Operator. Are these books really about the analytics of investing, or are they only about the philosophy of investing? I haven't read the Reminiscences of A Stock Operator, but the Intelligent Investor is based on a philosophy of investing that you should only consider but not depend on when you make investments." I'm answering in a perspective of an End-User within the United Kingdom. Most stockbrokers won't provide Real-time information without 'Level 2' access, however this comes free for most who trade over a certain threshold. If you're like me, who trade within their ISA Holding each year, you need to look elsewhere.  I personally use IG.com. They've recently began a stockbroking service, whereas this comes with realtime information etc with a paid account without any 'threshold'. Additionally, you may want to look into CFDs/Spreadbets as these, won't include the heavy 'fees' and tax liabilities that trading with stocks may bring.