How Long Does It Take to Make Money From Stocks?

The short answer is that it depends. It is possible to invest in stocks at the right time and experience a 20% increase in your first year. Maybe you get lucky and happen to buy a stock just before positive quarterly earnings are announced which shoots the price of the stock up.

Although it is possible to make money from stocks fast, it is not the right way to view it. Making money from stocks is not like a wall street movie in which you place a few trades and become a millionaire a few months later.

The reality is that the stock market goes up, down, and sideways. Some years the stocks you own will go up in value, while other years they will go down. For this reason it is best to adopt the mindset of a long term investor that has a focus on owning high quality companies.

For the everyday investor, all of the money that is to be made from stocks happens in the long term and not the short term. The reason for this is that in the short term stocks are volatile, meaning that the prices of stocks will fluctuate.

However, history tells us that over long periods of time, the stock market as a whole goes up. This can be proven by looking at the S&P 500 which is simply a stock market index that is often used to gauge the health of the stock market as a whole since it tracks the 500 leading US companies.

As you can see from the graph above, the stock market as a whole tends to go up over time. However, if you look at shorter time frames, the stock market goes down or even crashes. This is a vital concept to understand if you want to make money from stocks.

For example, say that you put money into an S&P 500 index fund just before the stock market crash in 2008. Let's assume that this was your first time investing in stocks. Your hope was obviously that the stock market would go up so you would be making money.

However, the opposite happened and the market crashed. It would be a natural response to panic and sell all of your stocks to prevent further financial loss. However, if you were to simply hold onto your investment, the market would eventually recover and go on to provide a positive return as a whole over the next 16 years.

Also keep in mind that losses and gains are only on paper until you sell them (realize the gain or loss). For example, say that you put $1,000 into the stock market and your portfolio went down by 20% in the first year. On paper this is a $200 loss.

However, if you do not sell the stock, you have not lost any money. Instead you can simply hold onto the stocks and wait until the market recovers which can take years at times. The point here is that it is highly unlikely that you will get rich from stocks in a few years.

However, if you consistently invest in the stock market over a 20 or 30 year period, it is highly likely that you will build wealth from stocks. Your focus as an investor should be to own the stocks of high quality companies who will be around for the long haul.

You now understand that making money from stocks is in the long term and not the short term. However, this does not give a specific answer on how long it takes to make money from stocks. Fortunately, you can use the rule of 72 to get a more accurate gauge on the time it will take to make money from stocks.

The rule of 72 is a formula that can give you an estimate of when you will double your original investment based upon an assumed return. The formula is simple - 72/the expected rate of return will give you the amount of years that it will take to double your money.

For example, say that you decide to invest in a stock market mutual fund and anticipate that you can earn a 10% return. Simply plug in the 10% return to the formula (72/10%). With this return, your money would double in 7.2 years.

So, if you invested $10,000 into the stock market, you would have $20,000 in 7.2 years given an assumed return of 10%. Keep in mind that the rule of 72 is not a guarantee. The formula is based upon an anticipated return of the underlying investment.

However, this return may end up being different than what you anticipated. In the example above, the assumption was that you could earn a 10% return. However, if the actual return ended up only being 9%, your money would double in 8 years as opposed to 7.2 years.  

The point here is that you can use the rule of 72 as a rough estimate of how long it will take for your money to double in the stock market. If you combine a long term perspective with the rule of 72, you can get a better idea of when you will start to make money from stocks.

The goal of owning stocks is to build long term wealth. A good indicator that you have achieved this is by becoming a millionaire due to your stock portfolio. The question many people have in regards to this is how long will it take to reach that level?

As noted before, the answer is that it depends. Becoming a millionaire by investing in stocks is based upon three factors - time, contribution amounts, and return. The more time that you have to invest, the more likely you will become a millionaire.

For example, if you invest consistently in the stock market for 30 years, your money will have more time to grow due to compound interest as opposed to if you only invested in the stock market for 10 years. Secondly, your contribution amounts will dictate how fast you can become a millionaire.

If you can invest $1,000 per month into the stock market, you will build wealth faster than if you only invested $100 into the stock market. Finally, your anticipated return will impact how fast you will become a millionaire. If you can earn a return of 10% per year over time, you will reach millionaire status faster than if you only got an 8% return over time.

If your goal is to reach millionaire status as fast as possible, your focus should be to invest as much as you possibly can into aggressive investments that can provide higher returns. Keep in mind that investments that offer the potential of higher returns also come with more risk so make sure you have the risk tolerance to handle it.

However, with increased living costs and inflation not everyone is able to invest large sums of money each month. You may review your budget and find that you only have $500 to invest each month. So, how long would it take for you to become a millionaire?

If we assume that you can earn a 10% return over time and will consistently invest $500 each month, you would be a millionaire in 31 years. This can seem like a long time to wait, but it supports the point that the money to be made from stocks is in the long term and not the short term.

Also keep in mind that you will not get a 10% return every year. Some years your portfolio will be up, while other years it will be down. The most important behavior you can do is to stay consistent with your contributions no matter what is happening and look at the long term picture of the market.

As emphasized throughout this article, you can make money from stocks fast, but it is better to focus on the long term. In addition to understanding the amount of time that it will take to make money from the stock market, you should also understand other factors as you invest.

There is an old saying that says "time in the market beats timing the market." If you had a magic wand, you could invest in the stock market when it was down, and sell your position when it went up. If you were able to consistently do this, you would do extremely well in the stock market.

However, life is not that easy. In general, it is a bad idea to try to time the market. Even the best investors in the world do not know the exact time when the stock market will be up or down. If you wait to time the market, you could miss out on potential gains by sitting on the sideline.

Day trading is a short term investing strategy that involves buying and selling a stock on the same day to profit from the price movements of the underlying stock for that day. In general, you want to avoid this strategy.

Remember, making money from stocks is a long term play. There are successful day traders out there, but for the vast majority of individuals adopting a day trading strategy is not a smart move. It is highly likely that you will lose more money than you make.

Diversification is simply the idea to not put all of your eggs in one basket. If you only own a single stock, you are betting on that one stock alone to make you money in the stock market. While you may be able to pick this one stock, it is better to spread your money around.

It is important to own a mix of high quality stocks of companies that will be around for the long haul. Doing this increases the chance that your overall portfolio will go up over time even if some of the stocks you own do not perform that well.

Risk tolerance is simply a measure of the amount of risk you are willing to tolerate as you invest. As previously stated, you can make more money in the stock market by owning stocks that offer the potential for higher returns.

However, the downside to doing this is that these stocks tend to be more volatile. If you try to make more in the stock market by buying these stocks, you need to ensure you can handle the price swings. If you cannot, it is better to stick to more stable stocks or stabilize your portfolio by purchasing bonds.

Above all else, the key to making money in the stock market is to stay consistent with your investing. If you put $500 into the stock market once and waited 10 years, you would likely make money. However, if you were to invest $500 each month into the stock market for 10 years, you would have significantly more.

The bottom line is that the money that is to be made in the stock market is in the long term and not the short term. Of course it is completely possible to make money in the short term. You may make money almost instantly when you buy your first stock if the price goes up after you buy it.

However, the point of this article is to help you understand that you should take a 30,000 foot view when you invest in stocks. You will not make money every year, but if you hold a mix of high qualify companies and invest consistently, there is a high likelihood you will make money from stocks in the long run.