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What is the primary source of wealth creation in America?
The answer is investing in stocks.
In fact, nearly 70% of the wealth gains made in the last 1.5 years by the ultra-wealthy came from the stock market.
And in today’s post, I’ll show you how to get rich off stocks so you can build wealth like the top 1%.
Let’s get started.
In this article
Can You Get Rich Off Stocks?
Yes, you can get rich off stocks. Investing in the stock market is a proven way to build wealth but it involves things like consistently investing, not selling during market volatility, and holding stocks for the long term.
How to Get Rich Off Stocks
Getting rich from stocks requires a step-by-step roadmap.
And that’s exactly what I’m going to show you in this post.
It’s also critical to understand your risk tolerance, compose a diversified portfolio, and hold onto investments for the long term.
So if you want to get rich in the stock market, follow these steps:
1. Understand Stock Market Basics
The very first step is to understand the stock market fundamentals.
For example, you’ll need to get comfortable with:
- Market volatility
- Long-term investing
- Consistently investing
The stock market is its own animal – and if you want to get rich with investing, then you need to understand the basics.
Note:You won’t become an overnight stock market millionaire. However, if you invest for several decades, the chances are very much in your favor.
If you’re dedicated to getting rich from stocks and you’re not an investment professional, you need to get expert advice.
That’s why I recommend the stock market analysis tools offered by Seeking Alpha 👇
Seeking Alpha is arguably one of the best stock research platforms in the world.
Here’s why:
- Connect with investment experts
- Get a custom virtual portfolio tracker
- Exclusive access to trending stock analysis
- Link and analyze stocks in your actual portfolio
- Personalized individual stock performance tracker
I kid you not when I say that every morning, the first thing I do is have my coffee and read my Seeking Alpha news.
You can also gain insights into stock ratings, technical analysis, and so much more:
With Seeking Alpha, you do your own stock research and review the insights offered by the experts.
The best news?
Seeking Alpha’s “Quant Analysis” has been on point, outperforming the S&P 500 for the last 12 years:
Those stocks that were labeled as “very bullish” by Seeking Alpha’s Quant Analysis showed returns of 1,754% while the S&P 500 returned only 385%.
So if your goal is to invest in stocks that will make you rich, consider subscribing to a proven stock analysis service like Seeking Alpha.
2. Create an Investing Budget
Here’s a trick that I learned while working in the corporate investment world:
Think of your investments as a part of your monthly expenses.
In other words, start factoring your monthly (or weekly) investments into your monthly budget.
Why?
When you start budgeting your investments, you can actually track how much money you contributed over time.
It’s a very powerful tool.
So how do you create an investing budget?
Download budgeting software like YNAB (aka You Need a Budget) 👇
YNAB gives you the tools to understand where you are presently and what you need to do to get to your financial goals.
Again, if you’re serious about tracking your finances and investments, YNAB is budgeting magic.
Recommended Reading: YNAB Review
3. Determine Your Risk Tolerance
The next step is understanding how much risk you can take with your money in the stock market.
Below is a broad overview of the investor risk spectrum:
| Risk Tolerance | Explanation |
|---|---|
Conservative | - Cannot tolerate stock market volatility - Needs more bonds than stocks - Typically a 40/60 or 50/50 portfolio |
Moderate | - Is ok with mild volatility - May want a healthy mix of both stocks and bonds - Typically a 60/40 portfolio |
Aggressive | - Has a long investment time horizon - Doesn’t care about market swings - Typically a 90/10 or 100/0 portfolio |
Understanding your risk tolerance is a time when you really have to listen to yourself.
If you don’t think that you can sleep at night because your portfolio lost 30% to 50% of its value, then you may be a moderate or even conservative investor.
Another example is if you believe that you’ll need a lot of money to live a comfortable retirement, you may have to increase your risk level so you can get higher potential rewards.
4. Develop an Investment Strategy
Without a solid foundation, a house would come crumbling down.
The same goes for your investment strategy.
Your investment strategy is the foundation that helps you decide when you should and shouldn’t invest.
A strategy will help you avoid making investment decisions based on emotion.
Here are some things that make up your investment strategy:
Passive Investing Vs. Active Investing
First, it’s critical to understand whether you are an active or passive investor:
- Active Investor – The goal is to beat the market by placing frequent trades
- Passive Investor – The goal is to perform with the market using a buy-and-hold strategy
While active investing and trading daily might sound sexy and alluring, it’s actually proven to be the less lucrative investment strategy over time.
For example, check out the percentage of actively managed funds that failed to beat the market:
Yes, actively managed funds can outperform the stock market – but typically it’s only over the short term.
Over the long term, these actively managed funds have generally failed to outperform the index.
Caution:Fund managers charge high fees to actively manage your money.
These fees, in turn, also eat into your overall profit.
That’s why I recommend passive investing.
Passive investing is less stressful, less costly, and its long-term approach has been a proven strategy to build wealth.
Technical Investor Vs. Fundamental Investor
Second, you’ll also want to take a closer look into whether you’re a technical or fundamental investor:
- Technical Investor – You focus on the stock itself and attempt to project future price movements based on historical data
- Fundamental Investor – You are a long-term investor and focus on the economy as a whole. You look at the financial drivers of the economy
If you’re a day trader or a swing trader and are looking for short-term gains, technical analysis is for you.
If you’re a long-term investor and want to buy and hold undervalued companies for the long term, then consider using the fundamental analysis approach to build your wealth.
Doing it Yourself Vs. Hiring an Advisor
Third, you want to consider the type of investment advisor that you wish to hire (if any!).
Coming from the investment management world myself, I would highly recommend you consider hiring a fiduciary investment advisor.
Fiduciary Definition:A fiduciary is someone who is required by law to do what is in your absolute best interest.
So by law, fiduciaries are forbidden to sell you products that don’t fit your financial strategy.
Non-fiduciaries may sell you products that aren’t the best for you – but these products earn high commissions.
Pro Tip:Look for investment advisors with the CFP(r) marks - aka Certified Financial Planner.
CFP(r)’s are fiduciaries and are the gold standard when it comes to financial planning.
5. Invest in Index Funds
Index funds track an index (like the S&P 500). They never try to beat the market, they are low cost and they are passively managed.
For example, if you buy an S&P 500 index fund, you’re buying 1 fund, but that 1 fund invests in the 500 companies in the S&P 500.
So what’s your benefit?
You get diversification – which is critical to a successful portfolio.
Here’s a list of other benefits you get from investing in index funds:
- Low cost
- High returns
- Tax-efficient
- Diversification
- Passively managed
And it gets better:
If you’re focused on the long-term, index investing is a proven strategy to build wealth.
In fact, check out the probability of an actively managed fund beating the market:
As you can see, an actively managed fund has poor odds of beating market returns.
One reason why index funds outperform active funds comes down to the fees that are charged.
Most actively managed funds charge 1% or more, while index funds often charge 0.05% or less.
In the long run, that can make a big difference.
So how do you invest in index funds?
If you’re a beginner investor, then check out Acorns 👇
The reason why I like Acorns so much – especially for beginner investors – is because you can start investing with just $5.
After you’ve invested your first $5, you can continue investing with just a few cents at a time.
It’s all about consistency: It doesn’t matter how much you invest, what matters is that you invest often.
And Acorns lets you do just that – invest in index funds with simplicity.
6. Buy and Sell Individual Stocks
Buying and selling individual stocks allows you to earn much higher returns.
The downside?
Buying and selling individual stocks comes with a lot more risk, especially if you don’t know what to look for.
That’s why I recommend joining Seeking Alpha 👇
Seeking Alpha is one of the best stock research platforms out there and it can help you crunch the numbers before you start investing in individual stocks.
Here are some more benefits to investing in individual stocks:
- Liquid
- Buy fractional shares
- Higher potential returns
- More tax-efficient than mutual funds
You can get rich from investing if you select the right stocks.
Just remember to remain calm during volatile times. Don’t rush to sell in a panic.
Recommended Reading: Seeking Alpha Review
7. Buy and Hold for the Long Term
Timing the market sounds sexy and exciting, but it can hurt your portfolio.
Here’s why:
Even if market volatility hurts you in the short term, stay focused on your long-term goals because missing just the 10 best days in the stock market can significantly hurt your overall wealth.
Of course, there are other benefits to buying and holding as well, such as:
- Increased tax efficiency
- Collect additional dividends
If you are a dividend investor and prefer to invest in stocks with a high dividend yield, buying and holding is your best bet.
As you earn dividends, you can reinvest those earnings and build your stock portfolio.
And, from a tax perspective, holding your investments instead of selling them within a few months of buying can also reduce your end-of-year tax liability.
8. Invest Consistently
Here’s the secret to getting rich from stocks: Invest consistently.
If markets are up, down, or sideways, just keep investing on a set schedule (whether that’s weekly, bi-weekly, monthly, etc.).
And there’s even an investment strategy that helps you do exactly that.
It’s called dollar cost averaging and it’s also used by the pros.
Instead of investing a lump sum of money, you invest small amounts of money over a long period of time.
This means you can invest when prices are both higher and lower – and over time, this strategy helps your money go further.
Pro Tip:Make your recurring investments part of your regular budget expenses.
You can set up a DCA plan directly from your investing app.
One of the best investing apps that helps you DCA is Acorns.
Acorns even has a feature that rounds up your transactions to the nearest dollar and invests the change into your investment account’s portfolio.
Of course, you’ll have to link your credit or debit card to your Acorns account so that Acorns can monitor your transactions.
If your goal is to invest like a millionaire, then every single dollar counts.
9. Use an Effective Tax Strategy
You can get rich by investing – but make sure to consider an appropriate tax strategy.
Believe it or not, taxes can play a crucial role in determining your overall investing success – or failure.
Here are some things to keep in mind:
- If you are investing in a tax-deferred account (like an IRA or 401k), you won’t have to worry about taxes if you sell stocks – you only pay taxes when you withdraw money
- If you are investing in individual or joint accounts, you will have to worry about taxes in the year you buy or sell the stocks
When you sell a stock, mutual fund, ETF, etc. at a gain, you’ll have to pay capital gains tax.
There are 2 types of capital gains taxes:
- Short-term capital gains – Assessed on investments held for less than 1 year and you pay regular income taxes on any short term capital gains
- Long-term capital gains – As long as you hold your investment for 1+ year, you pay less taxes than short term capital gains taxes
And this is where tax-loss harvesting comes into play.
Tax-loss harvesting is when you strategically sell some investments with gains and offset those gains by selling other investments with losses.
By offsetting capital gains with capital losses, you basically reduce your tax bill.
FAQs
Can you become a millionaire from stocks?
Yes, you can become a millionaire from stocks. However, it’s not easy and it takes a lot of time. That’s why you need the right strategy – such as buying and holding stocks and consistently investing. If you follow the right strategy, making money in the stock market can be easier than you think.
How long does it take to get rich from stocks?
You can get rich by investing in stocks – but it will take time. For example, consistently investing in the S&P 500 over a 12 to 15-year period could mean you may become a stock market millionaire. Investing in individual stocks might make you wealthier faster.
Can stocks make you rich overnight?
No, you cannot get rich off stocks overnight. Getting rich from stocks takes time and you need to consistently invest in stocks to build wealth. On average, you should see a roughly 7% annual return if you invest in the S&P 500 for example.
How much money do I need to invest to make $4000 a month?
Making passive income from stocks depends on the stock yield. If your goal is to make $4000 a month, then at a typical 4% yield, you’ll need $1.2 million as an initial investment. Don’t sacrifice the quality of a stock to get a higher yield and make sure you dig deep before investing in a high-yielding stock.
Can a person become rich by investing in the stock market?
Yes, you can become a stock market millionaire. The trick is investing consistently and investing over several decades. In fact, between 2020 and 2021, the top 10% of Americans saw their wealth increase by 43%, thanks to their stock investments.
How do beginners make money in the stock market?
Anyone can make money in the stock market – as long as you start early, stay invested, and invest consistently. The very first step is to open a robo advisor account and start investing even if it’s $1 a week. Over time, small investments compound, which is why beginners can become stock market millionaires.
Getting Rich From Stocks: The Bottom Line
Getting rich from stocks is pretty simple.
Here are some important steps to keep in mind:
- Do your research
- Invest consistently
- Buy and hold for the long term
You don’t need a degree in investment management to get rich in the stock market – all you need is a little common sense.
If you are looking to dive a little deeper and increase your chances of getting rich by investing, then check the investor tools offered by Seeking Alpha.
