Can you get rich from stocks?

Can you get rich from stocks?

Consistent investing into the stock market takes advantage of compound interest, money invested making more money. Long term stock market investors typically see an annualized return of 10%. With a consistent long-term investment strategy, investing $450 per month will be $1,000,000 in 30 years at 10% ROI.

Imagine, getting rich by simply investing in the stock market. You can automate the process and build wealth without even thinking about it.

Year over year, your portfolio grows in value.

Luckily for you, I’m going to show you that it is possible to get rich from stocks. I’ll even show you how long it takes to get rich from stocks and what methods you can use. With proper risk management, you can start making good money investing in the stock market.

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Can you get rich from stocks?

The goal with stock market investing is to make money, so you can get rich from stocks. Most investors see better results with consistent, buy and hold investing. However, it is possible to lose money which can be mitigated by investing in what you know and learning about investing.

The first rule of investing is to not lose money, which is completely possible. There are thousands of stocks losing money every day. Therefore, you need to know what you’re doing when it comes to investing.

The simplest strategy is to consistently buy and hold index funds for long-term investing. Typically, investors who constantly buy and hold index funds, like the S&P 500, see positive returns over time.

The most dangerous thing you can do is invest in something you don’t know. For example, don’t trade options if you don’t know how they work. Unfortunately, the majority of new investors lose money because they’re investing in what they don’t understand.

Investors who do really well in the stock market study investing. Successful investors read blogs, books, news articles, and even study successful companies. All of the resources you need to become a good investor are completely free.

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How long does it take to get rich from stocks?

Investing $450 at a 10% return on investment would be worth $1,000,000 in 30 years. However, the amount of money required to be financially independent is different for everyone. The only thing that matters when getting rich from stocks is savings rate and rate of return.

Your definition of rich is important. I’m going to assume that you associate rich with being able to be financially independent and retire. How much money you need to retire is different for everyone.

For example, you may be comfortable living on $30k per year using the 4% rule for withdrawing investments. Therefore, to retire you would need $750k invested. Someone wanting to retire with a $50k salary would need $1.25M invested.

As you can see, how much money you want to live on in retirement makes a difference.

You’re going to have more control over your savings rate. Savings rate is how much money you save versus how much you’re spending. Aggressive investors save more than 40% of their gross annual income.

You might see a $100k earner only investing $10k per year (10% savings rate). Alternatively, you might see a $50k earner investing 40% of their income or $20k. The $50k earner will be better off financially because they can invest more.

The performance of your investments will also determine how long it takes you to get rich. Investing in an S&P 500 index fund might get you an annualized 10% ROI. However, choosing the right IPO might make you 1,000% or more in five years.

For reference, here’s how much time it takes to save $1,000,000 assuming normal market returns.

Yearly Investment Contributions 5 Percent ROI 7 Percent ROI 10 Percent ROI 12 Percent ROI
$10,000 36 Years 30 Years 24 Years 22 Years
$15,000 29 Years 25 Years 20 Years 18 Years
$20,000 25 Years 22 Years 18 Years 16 Years
$25,000 22 Years 19 Years 16 Years 15 Years
$30,000 20 Years 17 Years 15 Years 13 Years
$35,000 18 Years 16 Years 14 Years 12 Years
$40,000 16 Years 14 Years 13 Years 12 Years

How do you get rich from stocks?

Get rich from stocks by investing for the long term on a consistent basis. Stocks make money through price increases (Capital gains) and sometimes pay cash payments (Dividends). Compound interest, where your money invested makes money, is what makes you rich from stocks.

As previously mentioned, investors who invest for the long term consistently tend to build wealth. The majority of active traders are losing money and active fund managers can’t beat the market’s performance. Long and boring investing over time has proven to be the best method for making money with stocks.

Buy and hold investing works because of compound interest. Your $100k portfolio earns 10% and is now worth $110k. You consistently add $10k per year, making your portfolio worth $120k. Next year, earning another 10% from gains and dividends makes your portfolio worth $132K

Eventually, you’ll build up an unstoppable snowball of stock market returns. Sure, earning 10% on $100k is $10k. What happens when you’ve got $1M invested? Earning 10% is $100k!

Stocks can make money in two ways, capital gains and dividend payments. A capital gain is when the price increases and makes the share more valuable. Dividend payments are given by some companies to reward investors.

Some of the best methods for getting rich include index funds, growth and stocks, initial public offerings, and even trading stocks.

Index funds

Index funds are a collection of stocks offered at one low price. For example, VOO is the Vanguard S&P 500 exchange traded fund. VOO currently costs $340, but gives you ownership in the top 500 companies in the United States.

Index funds simplify investing and keep your investments diverse. You can buy an index fund and not have to keep up with thousands of different companies. You’ve still got hundreds of other stocks in the index fund should one company not do well.

Index funds come in a variety of different offerings. For example, you can buy index funds focussed on growth stocks, dividends, IPOs, total stock market, real estate, technology, and so much more!

Growth Stocks

Growth stocks are individual companies which are growing rapidly. Capital gains are the primary source of wealth building, so don’t expect many dividends. Dividends are usually given when a company doesn’t have a better growth opportunity.

Dividend Stocks

Dividend stocks are individual companies which are a bit more established. Typical dividend yield ranges between 1-10% of the stock price. A 5% dividend yield on a $100 stock would pay $5 over the course of one year.

Dividends are great for providing cash flow. Cash flow is good because it provides you with a secondary income source. Some people choose to retire when their cash flow exceeds their living expenses.

Initial Public Offerings

Initial Public Offerings (IPOs) are when a company first becomes publicly traded. An IPO can provide a company with enormous amounts of cash to grow their business quickly. When a company grows quickly, so does the share price.

Some companies have had amazing IPOs. For example, Shopify’s stock price grew over 1,000% in the first five years after the IPO. Therefore, you can make a lot of money if you know which company to pick.

SHOPIFY STOCK PRICE - IPO

Trading Stocks

Trading stocks is risky, but you can make good money if you find the right trade. For example, let’s assume Facebook takes a 30% drop in share price over bad news. 

Most of us would agree that FB is a good business and this 30% drop is temporary. An investor might buy FB at a 30% ‘discount’ and wait for the price to recover.

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Summary: can you get rich from stocks?

As you can see, it is possible to get rich from stocks. Successful investors are the ones who invest consistently over time. Just make sure you know what you’re investing in and don’t lose money!

You get rich from stocks through compound interest or where your money makes you money. Stocks can rise in value which is called capital gains. Other stocks may pay a dividend which is a cash payment for owning the stock.

How long it takes to get rich from stocks depends on your investing goals. You also need to work on your savings rate to minimize expenses and invest more. The rate of return you receive will also impact how long it takes for you to retire.

The best methods for getting rich from stocks are index funds, growth and dividend stocks, IPOs, and sometimes trading. Trading is risky and the majority of traders lose money.