by Alex Bramwell

Created on: April 13, 2010   Last Updated: June 15, 2010

Over the past one hundred years investing in the stock market has been the single greatest method of wealth creation for private investors. It has outperformed gold,cash,bonds and real estate over the long term despite periodic declines in value. The key to successfully investing in the stock  markets is to take a long term view. Almost every quick fire strategy devised to beat the market and make money fast has failed to perform in the long term. Ask yourself why get-rich-quick investment schemes are sold by Internet marketing gurus. If their systems worked they would be drinking mojitos in the Caribbean rather than peddling them to other people.

You will always hear stories of people who made their millions from CFTs, short selling, commodity brokering and any number of other very complex and exotic sounding ways of investing in markets. These people do exists, but random chance has a lot to do with their success. For everybody who makes a fast fortune in the markets, somebody else loses two. Marketing gurus who peddle exotic investment methods are like old fashioned racing tipsters; if they take enough people's money, someone will get rich and give them all the credit. Most people however, will lose out!

The efficient market hypothesis states that a single investor cannot outwit the market regularly enough to make money from it. Basically, it means that the stock market as a whole is very efficient and that trying to second guess it is akin to playing roulette in the casino. Successful investors always limit their exposure to risk; and I don't mean by wearing non-slip shoes while they shoot craps.

None of the above should put you off investing some of your savings in the stock market. Sensible investment in shares has outperformed almost all other forms of investment over the past 100 years and there is no reason to believe that this is going to change in the next century.

There are a few things you can do that will increase your chances of making money on the stock market:

Take a very long term view of your investment. Unpredictable fluctuations affect share prices over short periods of time but over the past century the overall trend has been for share prices to rise. Don't put money into the markets unless you know you will not need it for an absolute minimum of 5 years. A ten year view is even better!

Keep your costs down by limiting the number of trades you carry out. Every time you buy or sell a share the transaction costs you money and eats into your overall return.  Remember that brokers make money every time you trade.

Buy a wide range of stocks and shares in different sectors of the market. You don't want to be the person who has all their money in oil exploration when someone invents a way of making cheap electricity from wave power. A diversified portfolio reduces risk!

Do your research and choose companies that are on a sound financial footing. Invest in companies that you understand and that make money in simple ways. If you don't understand a company's business model, there is a good chance its directors don't either. If you don't have time to research individual companies, consider buying a tracker fund. These are very low cost funds that buy all the shares in a particular stock market and track its performance. They are a low cost bet that over time the total value of the shares that make up a stock market will rise.

Investing in the stock market has historically been a reliable method of increasing your wealth provided it is done sensibly. Remember the old adage; if something sounds too good to be true, it probably is!

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