The stock market – a super lucrative place for people to try turning their money into more money. The concept of making your money grow pulls in loads of people every year into the stock market. But the real question many people have is – how long does it really take to make money in the stock market?
Well technically, the answer to this question is – it depends. It depends on how much risk you are willing to take and the amount of patience you bring to the market. You can make money in stocks in as little as 2 minutes or as long as several years. It completely depends on how you approach the market.
There are several ways of investing or trading in the stock market. For example, a day trader, as the name suggests, opens and closes his trades within a single day. On the flip side, a long-term investor makes investments in the market for a longer period of time and holds his investments for a year or more.
In between these two, lies another category of traders, the swing trader. The trades of a swing trader usually last from a few days, weeks, or even a couple of months.
The general consensus is that the longer you stay invested in the stock market the more money you can end up making. This happens due to the compounding effect, which is basically the concept that the profits that you make from your investments can be reinvested to make more profits.
And on the other hand, the shorter your trades are, the riskier your time in the market will be.
What truly matters here isn’t the duration of your trades in the stock market but being able to make money from it on a consistent basis.
How Long Does It Take to Double Your Money in the Stock Market?
For a deep understanding of the above concept, let’s take a look at how long it takes to double your money. There’s an easy way of calculating this and it is known as the rule of 72.
The Rule of 72
The rule of 72 is a simple formula that states that the amount of time needed to double your invested money is 72 divided by the rate of return. For example, if you make a 10% return on your investment annually, it will take you 72/10 = 7.2 years to double your money.
Similarly, a 10% return monthly will double your money in 7.2 months and a 10% return daily will double your money in 7.2 days.
This rule keeps the logic of compounding into consideration. And it is just a close estimation and not an accurate exact number.
Different Ways of Trading/Investing in Stocks
As mentioned above, there are many different strategies for trading and investing in the stock market. Let’s take a look at the three most common ones below and how long it takes to make money with each of those.
Like I said earlier, day trading is the riskiest way of trading in the stock market. Relying on day trading as a stable source of income is a very difficult thing to do and requires some serious skills.
A day trader enters and exits a trade within the same day. This can be done in one or more trades within that day.
The price of a stock can gain or lose a certain percentage of its value in a single trading day in either direction. Day traders try to predict and gain from these movements in stock prices using technical analysis (reading of charts).
There are many strategies and techniques that day traders use for their predictions. And their success rate depends on many factors like risk management, trading psychology, etc. The goal is to be right in more trades than being wrong to emerge profitable.
It is a great way of learning the highs and lows of the stock market in a rather short period of time. A trade with this method can go in your favor (or against you) within a matter of seconds or minutes. So, if you like the adrenaline rush and if you’re good at making quick decisions, day trading could be a good fit for you.
Now using the rule of 72, let’s take a look at how long it will take you to double your money if you were making consistent returns with day trading –
|Rate of Return per Day||Days to Double (Rule of 72)||Weeks to Double*|
As you can see, day trading offers the fastest way to double your money (in just 144 days) even if we consider that you’re able to make a bare minimum of 0.5% return per day consistently on average. But keep in mind it is also the riskiest way of trading the market.
Day Trading Pros
- Be your own boss
- Potential of making lots of money in a short period of time
- Can make money even in a falling (bear) market by selling first and buying later (short selling)
- No overnight risks
Day Trading Cons
- High-Risk High-Reward
- It’s time-intensive and requires you to spend long hours during the day in front of the screen
- Emotionally exhausting as it can be a rollercoaster of highs and lows
- Potential of making big losses in a short period of time
- Low success rate (according to statistics)
Swing trading is somewhere in the middle between day trading and long-term investing. The difference between swing and day trading is the timeframe for holding a stock.
The trades in swing trading usually last for more than a day, usually for several days, weeks, or even months if needed. A swing trader tries to predict the direction of the market (whether it will go upwards (bullish) or downwards (bearish)) and buys or sells stocks depending on that.
These types of traders usually use daily and hourly charts to try and read the market to make their moves.
Swing trading can also be quite a risky way of trading in the market, especially for beginner traders. But if you think you have the right amount of experience and patience to hold onto your trades for a longer time, swing trading could just be for you.
Let’s now take a look at how long it will take to double your money if you make consistent returns with swing trading –
|Rate of Return per Month||Months to Double (Rule of 72)||Years to Double|
As you can see, even if you made a meager 1% return on your capital every month, it’ll take you around 6 years to double it. And it is also considered a bit safer than day trading.
Swing Trading Pros
- Requires lesser time commitment than day trading
- Possibility of making bigger profits in a single trade
- Trade even when the markets are closed
- Does not tie down your capital for a long period
Swing Trading Cons
- Exposure to overnight and weekend price fluctuations
- Can be less exciting than day trading
- Like bigger profits, losses can also be greater
- Possibility of missing opportunities in shorter timeframe volatility
Long-term investing, as the name suggests, is a way of investing your money for a longer period of time. It is also considered to be the most profitable and least risky method of all.
In the past century, the S&P 500 has given a return of 10% per year on average. Some years more and some years less. Anyone making an annual return of 10% or more on their capital is generally regarded as doing well in the market.
But that is definitely not the case and most people fail to even become profitable. This is believed to be the case because of their inability to hold on to stocks long enough.
Obviously, as is commonly known, there are no certainties in the stock market, only probabilities. No form of trading or investing can guarantee you a certain amount of return within a given time period. But comparatively, long-term investing is considered to be the safest and most stable way of working in the market.
Additionally, when you hold stocks for a longer time, some companies may pay you annual dividends. This provides for an additional way of earning from your long-term investments.
Now let’s take a look at how long it will take you to double your money once you start making consistent annual returns with a long-term investment strategy –
|Rate of Return per Year||No. of Years to Double (Rule of 72)|
As you can see above, considering the average 10% annual return from an index fund, your capital will be doubled in about 7.2 years. This is way better than keeping your money in a savings bank account which only gives you a return of between 1% and 3% (at 1% it will take 72 years to double your investment).
Again, keep in mind that you may make way more or way less depending on the stocks or funds that you choose. You can also make losses at the same time. That’s why it is always a good idea to diversify your investments into different types of stocks and sectors.
Unlike day trading and swing trading, which make use of technical analysis, long-term investing requires you to focus on the fundamentals of a company.
Long-Term Investing Pros
- Least risky way of trading/investing
- Some of the biggest players in the market like Warren Buffett use this investment strategy
- Less stressful and keeps your peace of mind intact
- Requires the least amount of research
- Isn’t time-consuming as it doesn’t require you to monitor daily or weekly market movements
Long-Term Investing Cons
- Slowest way of making money from stocks
- Requires a lot of patience
- Annual returns are generally lower than a professional trader
- Holding stocks for a long period of time means that it ties up your capital
To calculate how much money you can make in stocks, after taking the various factors mentioned above into consideration, you can use this investment calculator.
1. Can you make money fast with stocks?
The answer is – absolutely yes! If you are an experienced and proficient trader, the easiest way to make fast money with stock trading is by becoming a day trader. A day trader moves in and out of trades swiftly within a single day, sometimes executing multiple trades within that day.
2. Can you make a living off stocks?
The simple answer is yes. There are loads of people across the world who do stock market trading as a full-time job. But do keep in mind that the majority of traders lose money in the markets. So if you have the right amount of patience, skillset, and determination, stock trading could be the right fit for you. Trading stocks as a means of living brings many advantages as well like the freedom and getting to be your own boss.
3. How much money can you make from stocks in a month?
There are a lot of factors that may determine the answer to this question, things like your risk-to-reward ratio, trading strategy, risk management, etc. If we consider a conservative risk-to-reward ratio of 1.5, a day trader can end up making anywhere between 5% to 15% of his capital in a month.
4. Can you get rich from stocks?
Yes, you can most definitely become rich by investing in stocks. There are several ways of approaching the stock market and investing is considered one of the most reliable ways to grow your money over time. Factors like the amount of time spent in the market, diversification, and strategy amongst others will determine your level of success in the stock market.
Final Thoughts on How Long It Takes to Make Money From Stocks
Trading and investing in the stock market unfortunately does not have a one size fits all approach. There isn’t a foolproof guide that can guarantee success in your trading career. The best teacher in the market is experience.
The style of trading or investing that suits you best will only come to you once you get some hands-on experience in the market. Some people love the excitement, adrenaline, and the fast-paced movements of day trading while others prefer taking the longer and safer route of long-term investing.
The longer you hold on to your stocks, the more probability of you making money with the help of the power of compounding.
I hope this article has given you a clear picture of the amount of time required to make money from stocks. Please do comment below if you have any questions and I’ll be more than happy to answer them.
I wish you all the best for your time in the market!