The information contained in this article not intended to be a substitute for legal or financial advice that can be provided by your own attorney, accountant, and/or financial advisor.
Over the past couple of years, investing and trading stocks have increased significantly in popularity.
But the first question I always get asked is: how long does it take to make money from stocks? It’s an interesting shift in investing philosophy from the tried and tested strategy of long-term investing.
So what’s the answer to this question?
The only true answer is: it depends. There is no one way to make money in the stock market, just as there is no one timeframe to do so. You can make a fortune from day trading or from buying and holding for decades.
There is also no guarantee you’ll ever make money in the stock market either. Investing or trading are skills that take time to hone over years of experience. If you are looking to get rich quickly, there are far less risky ways to do so than trading stocks!
How Long Does it Take to Make Money From Stocks?
With all of that aside, it really varies on which trading strategy you want to use. If you ask a day trader or a swing trader, they will tell you that you can make money within days or even within hours. Of course, this kind of trading is a fairly advanced strategy and I don’t recommend just jumping in without any experience or training.
If you ask a truly wealthy investor like Warren Buffett, he will tell you that time in the market beats timing the market. What does that mean? It means that over time, good businesses have had a historical tendency to grow in size and value.
So do you fancy yourself a trader or an investor? It’s probably the first question you’ll want to answer before getting into stock investing. Keep in mind there is always room for both strategies in your portfolio. You can trade short-term stocks and hold some for the long term as well!
Can You Make a lot of Money in Stocks?
Without a doubt! Investing in stocks is one of the best long-term wealth generators in the world. Historically, indices like the S&P 500 have grown by about 10% on an average annual basis. This means if you leave your money in an S&P 500 ETF or index fund, you’ll make an average of 10% returns on your investment every year.
Another way to make money with stocks is to invest in companies that pay you dividends. These are portions of business profit that the company pays to its shareholders. Oftentimes, they are paid on a quarterly basis, but some stocks will even pay them out every month.
You can imagine how receiving these monthly dividends will help your portfolio grow over time. This is the magic of compounding money. With each passing month or quarter, you can re-invest those dividends and help your position grow. This will inevitably lead to more dividends over time. Rinse and repeat! Of course, this means that dividend investing is a long-term game.
How Do People Make Money From Stocks?
The wonderful thing about the stock market is that there are countless ways to make money from stocks. As I mentioned, you can be a trader that has a short-term horizon on price movements. Or you can be a long-term investor that sits on their positions and collects dividends.
You can also trade options contracts which are derivatives of stocks that allow you to bet on their direction. Options can also be a great way to hedge your long-term positions or can generate income by selling premiums. A premium is what an options trader pays to buy an option contract.
How else can you make money from stocks? You can be as passive as investing in ETFs or mutual funds, or as aggressive as trading penny stocks. There is no right or wrong answer here. If you are just starting out in the stock market with little capital, I recommend taking a balanced approach to stocks. After that, you can learn more advanced strategies!
How Long Does it Take to Make Money From Stocks? What Have We Learned?
I hope that the thing you take away from this article is that it there is one answer to this question. That might seem vague but with so many different stock trading strategies it’s simply the truth. One thing you’ll have to determine before stock investing is your risk tolerance. This will likely lead you to the best path to starting out in the stock market.
If you are risk averse, you likely won’t want to jump head-first into day trading. Setting up your portfolio with a foundation of blue-chip stocks and ETFs is a good first step. This can also provide a nice cash flow if you buy dividend-paying assets. Over time your portfolio will begin to grow, and you can start to look at more advanced strategies.
So I know that everyone is itching to make money. We see social media influencers or YouTube videos of traders claiming they make a huge PnL each trading day. I would always take those with a grain of salt. Stock trading is never easy and a 100% winning percentage is impossible.
So how long does it take to make money from stocks? For the average investor, you’re probably looking at years. If you want to get rich fast with stocks, you’ll definitely need to take some bigger risks. I hope this helped!