Investing in the stock market is one of the world’s best ways to generate wealth. One of the major strengths of the stock market is that there are so many ways that you can profit from it.
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But with great potential reward also comes great risk, especially if you’re looking to get rich quick. If you plan to dabble in short-term or aggressive market strategies, bear in mind that you’ll be risking the loss of some or even all of your investable funds.
Most of the strategies listed below will ultimately prove unprofitable for the average investor, and you should always talk with a financial advisor before you embark on any new, aggressive stock market strategy. However, if you want to take a shot with these methods with a small percentage of your portfolio, it may possibly help you generate outsized gains.
Day Trade
If you’re a nimble and proficient trader, probably the “easiest” way to make fast money in the stock market is to become a day trader. A day trader moves in and out of a stock rapidly within a single day, sometimes making multiple transactions in the same security on the same day.
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For investors with a good understanding of market trends and the ability to anticipate or decipher financial results of particular companies, money can be made in day trading.
However, the average day trading investor typically loses money. In fact, anecdotal estimates suggest up to 95% of day traders lose money — and, even worse, they continue day trading. There is definitely money to be made as a day trader, but generally it’s best left to the professionals.
Sell Short
A short seller essentially bets that a stock’s price will fall. Technically, a short seller borrows shares of stock, sells them, then buys them back and returns them to the lender. If the stock price has fallen in between these two transactions, the short seller turns a profit. But if the stock instead rises, then the short seller loses.
In many ways, short selling is like day trading, meaning it’s a quite aggressive strategy. As the long-term trend of the market is strongly up, a short seller must have a compelling reason for believing that a specific stock or index will fall. Macroeconomic factors, an overvalued stock price or a deteriorating business are all reasons that might cause a stock to fall, but they are not guarantees.
In a booming market, even stocks that are “overvalued” or unprofitable may continue to rise. Like day trading, short selling can be profitable, but it takes a very astute or professional trader to do so.
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Trade Speculative, Over-the-Counter Stocks
Although names like Apple and Microsoft dominate the financial news, there are plenty of stocks that the average investor likely has never heard of that offer vastly greater opportunities for profit — and loss.
Over-the-counter stocks, for example, don’t trade on a public exchange and often sell for pennies per share. While many of these companies end up going bankrupt, they also offer speculators the chance to double their money in short order based on rumor and innuendo. Be aware that there is plenty of hype and outright fraud in the OTC markets, however, as they are full of touts that will pump up the price of a stock so they can sell out themselves before the prices crash.
Dabble in Meme Stocks
The so-called “meme stocks” that rose to prominence over the past few years, such as GameStop and AMC Entertainment, provided fantastical gains for some shareholders — and equally devastating losses for others. GameStop, for example, jumped 400% in a single week in January 2021, while AMC Entertainment posted an unfathomable 1,183% gain for the full year.
Since then, both stocks have continued experiencing steep declines and sudden surges.
Investing in these types of companies isn’t a solid long-term financial plan, and you certainly shouldn’t devote any significant portion of your portfolio to them. However, if you’re looking for stocks that can make huge moves in a relatively short period of time, these are areas you could investigate.
Earn Compound Interest
The main reason the stock market has been such a tremendous wealth generator is the effect of compound interest. While you can make short-term profits in the stock market, it’s actually a safer bet to leave your money in the market for the long term and let compound interest do its magic.
For starters, the longer you leave your money in the market, the less risk you actually take. While no one can predict what the market will do from year to year, the S&P 500 index has actually never lost money over any 20-year rolling period. That’s an amazing statistic when you think about how volatile the market can be over the short run.
If you can keep your money in the market for 10, 20 or even 30 years, your potential to build wealth is tremendous. Think about it this way: If you put $10,000 in the market and earn 10% per year, taking out your profits each year, you’ll have a net profit of $30,000 after 30 years, or three times your money. But if you instead let that money compound every year at 10%, you’ll end up with just under $200,000, or 20 times your money.
This may not be the answer that those looking for a quick buck want to hear, but the best, safest way to generate real wealth in the stock market is to stay in it.
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This article originally appeared on GOBankingRates.com: 5 Fastest Ways To Become Rich by Investing in the Stock Market
