Money is the root of all evil. There are many sayings that warn us against it, and yet we’re constantly drawn to want more.
As long as there’s been money, people have sought ways to make more of it. One way they do this is by investing in stocks. If you think about it logically, the idea is simple: buy low and sell high.
But is it really that simple? In this article, we’re going to answer the question, of how long does it take to make money from stocks, while covering the various different methods of stock investing.
So, let’s get straight into it.
How long does it take to make money from stocks?
There isn’t a magical formula that an expert can teach you to make money overnight. To make money in the stock market, you need to have a good understanding of how things work.
You can make money from stocks in as little as an hour, or as long as many years, depending on what your strategy is.
A rule of thumb when investing is the more time you invest, the more money you make, and the less risk you endure. Completely unlike short-term investing.
However, you may still get lucky with short-term wins. Nothing is 100% certain when it comes to stocks. But, it’s good to diversify your investments to protect against various uncertainties.
Different Methods of Stock Investing
There are many different types and methods of stock investing.
You have day trading, which allows investors to make money in a matter of days. But, carries a lot more risk than the others.
Then there’s long-term trading which means you hold onto the stock for a minimum of one year before you make money. This method is more lucrative and less risky, but of course, can take a lot longer.
Then there’s a sweet spot between both which is doing swing trades. With this method, the investor will hold onto the stock for anywhere from a few weeks to a couple of months.
Of course, every trading method has its pros and cons. For instance, day trading has the major pro of possibly earning a large amount in a short time span, but the downside of it is the high risk involved.
Experts that have been in this business for a long and know their way around stocks, can better evaluate risks, but there is still a lot more risk involved, even for them.
Now that we’ve established how long it takes to money with each method, let’s dig into more details to help you choose the best stock investing method for you.
Day trading is the most exciting for many and the riskiest. It’s extremely difficult to create a stable income using day trading.
You could pull it off a few successful trades, but relying on it for a stable income isn’t a good idea at all.
According to the Securities and Exchange Commission (SEC), some traders endure intense financial losses in hopes of fate twisting one day, but then it may never happen. That’s the risk involved.
If you have money to burn and you’re not looking to build up wealth intentionally, day trading can be a good way to learn the highs and lows of stock trading in a short time space.
It could also be something for you if you’re looking for that adrenaline rush.
But if you’re looking for something to replace your income and potentially retire on, then you should definitely look elsewhere as the risks involved are far too high here.
The key difference between day trading and swing trading is the amount of time you spend holding onto a stock.
Swing trading requires the trader to hold the stock for a lot more time than day traders. A swing trader buys and sells stocks depending on whether the market is bull (upward) or bear (downward).
This technique requires you to hold the stock for weeks or even months if necessary. As I mentioned above, the longer the duration, the less risky it becomes, and eventually, in a bull market, more profitable.
Swing traders profit from either upward or downward movements in the market.
They mainly target small wins that all add up in the end.
The whole technique isn’t linear and depends on how alert the trader is in their reading of the market, and the movement of the market.
For instance, a trader might have to hold a stock for six months to earn a 30% profit, while another might hold it for a week and earn 5% profits and eventually earn more than the first trader as time passes.
Due to the volatility of the stock market, swing traders utilize daily charts. These charts monitor stock movements in different durations. For instance, in a few minutes, hours, or even days) to help a trader decide when to make a move.
This type of trading can also carry with it a fair amount of risk, especially for beginner traders as they learn the ebbs and flows of the market.
You may sell because the market seems to be collapsing, but then the stock rises again and you’ve made a 20% loss. You could put that into another stock, with a similar thing happening. As you can see, after a few trades you may be down to a small fraction of what you started with.
If you have experience and the requisite patience to see a profit, then swing trading may be something for you to try out.
Onto what many believe to be the most profitable, and less risky (to some extent) method of them all.
Generally speaking, for a trader to do well in stock trading, you should be earning a profit of a 10% annual return on investment. This percentage is much better than holding your money at a bank or in bonds.
Yet, many traders fail at reaching this percentage. But why is that? Most agree that this all comes down to the fact that they didn’t hold the stock long enough.
The more time you hold the stock in the market, the more likely you’ll be able to find opportunities to seize. Smart traders don’t hop onto the first “small win” they see.
They understand how the market works, and that a longer duration generally equates to bigger wins.
Additionally, when you invest in stocks and hold them for longer, you may receive dividends if the company releases any. This is not the case if you don’t want to hold the stock for longer time periods and you’re missing out on another opportunity to earn more.
Final thoughts on how long it takes to make money from stocks
For trading, regardless of how many books may say otherwise, there isn’t a manual on how to win at stock trading and investing – it’s all in your knowledge and patience. You learn by experience.
However, that doesn’t mean that you should splurge all your money in the name of learning. There are some basic rules to follow to avoid a huge financial loss, even at the beginning.
As I mentioned, one is to hold the stock for longer durations. Because the more time you invest, the higher the likelihood of you eventually making more money.
Returns you get out can then be reinvested so that your money works for you and compounds over time.