The stock market is a way to turn your cash into more cash. The thought of making money in stocks seems very attractive and enticing. But how long should you wait to actually make some money?
Technically, you can make money in stocks in as short as 30 minutes, or as long as a couple of years. It depends on how you approach the market.
Day trading, as the name suggests, only takes a day to make money. On the other hand, long term trading takes at least a year invested on a stock. Swing trading is somewhere between the two. Most of the time, swing trading gains income from 2 weeks to a couple of months.
As a general rule, the longer time you invest, the more money you can earn. It is done by the power of compound interest where interest income earns more income.
Most of the time, the shorter time you invest, the riskier it is. The longer you invest, the less riskier it becomes.
Every trading strategy has its own strengths and weaknesses. Day tradings seems very attractive as you can earn money in as little as 30 minutes. But it is also the riskiest trading strategy.
Let’s take a look at how long to make money in each strategy.
How long to double money in stocks?
For easier computation, let us discuss how long to double your money. There is a way to simply calculate how long does it take. Its called the Rule of 72.
Rule of 72
This rule simply states that the amount of time you need to double your money is 72 divided by the interest income. For example, if you can make 10% per year, it takes 72 / 10 = 7.20 years to double your money.
Take note that it is not the exact number, but it is a good estimate. In case of 10% returns, the exact number is 7.27 years.
The same is true for monthly and daily periods. For instance, 10% per month takes 7.20 months to double.
There are a lot of investing strategies. For simplicity, we take the three most common and look evaluate how long to make money in each.
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Long-Term Investing
On the last century, the S&P 500 has returned 10% per year on average. There are years that returned less than 10%. Other years returned more than 10%.
Despite several market recessions that lost 40% or more in stocks on a year, when you take the average of all returns, it adds up to an average of 10% per year.
Of course, no returns are 100% sure. Whether you invest in individual stocks, or index funds, or both, the exact future returns are unpredictable.
On 2018, the market lost 6.88% on average. On the other hand, the market gained 28.88% on 2019.
Let us take a look at how long to double your money with a consistent income on long-term strategy.
Rule of 72
| Interest Rate per Year | Number of Years to Double |
| 1% | 72.00 |
| 3% | 24.00 |
| 5% | 14.40 |
| 7% | 10.29 |
| 8% | 9.00 |
| 10% | 7.20 |
| 15% | 4.80 |
| 20% | 3.60 |
| 25% | 2.88 |
| 30% | 2.40 |
Savings accounts returned between 1% to 3% which takes between 24 to 72 years to double. Index funds has returned 10% on average which means it will take around 7.20 years to double.
S&P 500, a group of top 500 stocks in the US, has returned around 10% per year on average in the last 100 years, which means investments will take 7.2 years to double.
(Source: 10.658% return per year on average from 1921 to 2021.)
Returns of 30% can be done by buying the right stock at the right price. At the same time, it is possible to lose money on picking stocks. Picking individual stocks can give you returns of anywhere between negative 100% returns up to 500% and up.
Long-Term trading focuses on the fundamentals of a company.
Pros:
- Less riskiest among the three
- Least amount of research (After a couple of hours researching, all you have to do is buy and hold for at least a year or two)
- Warren Buffet’s Investing strategy
- Makes you sleep well at night
Cons:
- A long time of waiting
- Requires patience
Day Trading
Stock prices usually gain or lose around 1% in a day in either direction. Some stocks (usually with high P/E ratio) can move 10% or more in either direction in a day.
Day traders tries predicts price movements of a stock in a day. They are going to make several trades in a day. Their goal is to be right in more trades than they lose.
For simplicity, let us say they done 10 trades, their goal is to make money in at least 6 of those.
For every trade, they can gain or lose money. At the end of the day, they will add up every income then subtract every loss. The goal is to make a profit for each day.
If they made consistent returns, here’s how long to double:
Rule of 72
| Income per Day | Days to Double | Weeks to Double |
| 0.50% | 144.00 | 28.80 |
| 1.00% | 72.00 | 14.40 |
| 1.50% | 48.00 | 9.60 |
| 2.00% | 36.00 | 7.20 |
| 2.50% | 28.80 | 5.76 |
| 3.00% | 24.00 | 4.80 |
| 3.50% | 20.57 | 4.11 |
| 4.00% | 18.00 | 3.60 |
| 4.50% | 16.00 | 3.20 |
| 5.00% | 14.40 | 2.88 |
Day trading offers the quickest way to double your money. With only 0.5 % returns per day, it takes only 144 trading days, or 7 months to double.
Although it seems attractive, the vast majority of people fails at day trading.
Pros:
- Lots of potential money can be made
- Can make lots of money in an hour
Cons:
- Potential loss of lots money
- Takes a lot of time (5 or more hours per day)
- Can lose lots of money in an hour
- No guarantee income
- Emotionally tiring
- Extremely low success rate
- More complicated
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Swing Trading
Swing trading is some kind in the middle of long-term and day trading. It applies both the fundamentals of a company and technical charts.
The goal is to buy the right stocks in the hopes of selling it for more in after a couple of months.
| Rule of 72 | ||
| Income per Month | Months to Double | Years to Double |
| 0.50% | 144.00 | 12.00 |
| 1.00% | 72.00 | 6.00 |
| 2.00% | 36.00 | 3.00 |
| 3.00% | 24.00 | 2.00 |
| 5.00% | 14.40 | 1.20 |
| 7.00% | 10.29 | 0.86 |
| 10.00% | 7.20 | 0.60 |
Compound Interest
There is no fixed number how much one can make money in stocks. There are a lot of factors that could affect your return in the stocks market.
The longer you invest, the more money you could ultimately make. If you are starting, try to consider every different strategy. And start with little money.
Compound interest is the process where the money invested is multiplied. For example, $100 a month at 12% per year income will be $349 496.41 in 30 years. The same $100 a month at 1% per year income will only be $41 962.82 in 30 years.
The difference of $307 533.59 is the power of compound interest. It works best over the long run.
And to have near 12% income, investing is necessary.
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