1. Home
  2. /
  3. Investing
  4. /
  5. Can Stocks Make You...

Can Stocks Make You Rich? Let’s Find Out the Reality

can stocks make you rich
1
(275)

Introduction:

Radhakishan Damani, Rakesh Jhunjhunwala, Raamdeo Agarwal, and other richest investors in India often give you a vision- to create wealth like them, to harness the power of the stock market and invest like them. As of March 2024, 15.1 Cr. demat account holders in India probably started their investment journey with the same vision. But is that kind of wealth attainable through just the stock market? Can the stock market make you rich? Let’s delve into the potential of stock investments to create wealth and see if it aligns with your aspirations.

How do you become rich in the stock market?

Before directly answering the question, ‘Can investing in the stock market make you rich?’ and proceeding to the strategies, let’s understand the prerequisites. 

  • Understand the market:

Getting rich overnight from a lucky stock pick is rare, but consistently following a sound strategy can grow your wealth over time. To choose the right approach, focus on the key factors that drive market returns:

  1. Economic conditions and market trends: Monitor macroeconomic indicators like GDP growth, interest rates, inflation, and unemployment. Also, observe the industry trends and global dynamics to understand the market’s direction.
  2. Sector performance and company financials: Look at a company’s financial health, revenue growth, profitability, and competitive position. Additionally, analyze the industry dynamics better to understand the company’s position in the market.
  3. Investor sentiment and market psychology: Market sentiment, driven by news, events, and investor expectations, can cause short-term price fluctuations. Understanding market psychology helps you anticipate price movements and make timely decisions.

Along with these, research the different investment options in the stock market. For instance, you can study options like direct stock investment, bonds, mutual funds, ETFs, index funds, and derivatives.

  • Understand your financial profile:

Defining your financial profile includes knowing your risk profile and investment goals. While determining your risk spectrum, check whether you are a conservative investor (can tolerate minimal market volatility), okay with moderate risk, or an aggressive investor (a long-term investor who can handle market swings). Also, check whether your investment goals need more time or if you have short-term goals. Accordingly, segregate your investment needs into short-term, medium-term, and long-term goals. 

  • Decide your investment budget:

Calculate the amount of money required to achieve your desired lifestyle. Once you have a target in mind, begin reducing unnecessary expenses to save more money. Budget your income and include your investment contributions in your monthly budget to track them over time. Identify areas where you can reduce spending to increase your investment amount. Even if you already contribute to investments, reducing other expenses can allow you to invest more. Also, identify whether you can set aside a lump sum or regularly scoop an amount towards investments. 

  • Understand the factors of investment strategy:

Curating an investment strategy means deciding the diversified asset mix and the investing style you aim to follow. 

  1. Investment styles:

The two main styles are active and passive investing. With thorough market knowledge and expertise, you can pick active investing and select high-growth stocks or hire professionals. Passive investing, on the other hand, is less risky and offers stable returns, helping you gradually build wealth. Combining both styles is ideal for creating a balanced portfolio. 

Another grouping of investment styles is technical investor and fundamental investor. As a technical investor, you analyze stock prices and predict future movements based on past data. 

On the other hand, as a fundamental investor, you focus on the overall economy and its financial drivers, investing for the long term. Technical analysis is your best bet if you’re a day trader or swing trader seeking short-term gains. However, if you’re in it for the long haul, buying and holding undervalued companies, use fundamental analysis to grow your wealth.

  1. Diversification: 

A diversified portfolio helps you handle market volatility. It spreads your risk and benefits you from returns across various asset classes. A diverse portfolio is a mix of low-risk stocks, growth stocks, value stocks, debt instruments and dividend stocks. The combination depends on your risk appetite and investment goals. Diversification should also be done with respect to sectors for better stock portfolio management

  • Set realistic goals:

Many new investors want big returns quickly. For instance, aiming for over 100% profit yearly from stocks is unrealistic. However, 20-25% returns can be achievable. It’s important to set realistic investment goals even when your main goal is to find a solution to the question, ‘How to get rich in the stock market fast?’ Avoid schemes promising quick, high returns; always research thoroughly before investing. 

Strategies To Reap Maximum Benefits from the Stock Market:

  1. Buy and Hold Strategy:

Many investors and traders prefer the buy-and-hold strategy. This strategy involves looking for fundamentally strong stocks across different sectors or those leading the market. You ensure these stocks have strong business models and good growth prospects. When these stocks dip in price, you seize the opportunity to buy them with a long-term mindset. 

These stocks might swing up and down in the short term, but they tend to grow steadily over time. Adopting a buy-and-hold approach can help you gradually benefit from long-term capital appreciation and build wealth. Most importantly, research thoroughly before picking the stock and focus on its intrinsic value more than the market value. 

  1. Collect dividend stocks:

Dividends are another way for you to benefit from the stock market. Some companies, particularly PSUs, may not be high profit-makers but consistently offer decent dividends annually. Companies such as ITC, Coal India, Hindustan Zinc Limited, ONGC, and others are known for their generous dividends. Investing in these stocks can generate a steady passive income, helping you build wealth over time.

  1. Prefer Indices Over Individual Stocks:

If you want to make money in stocks, there’s an easier and often more profitable way than picking individual stocks. Index funds club stocks together that reflect a market segment, like the BANK NIFTY. When you invest in index funds, you’re buying into a diverse range of stocks all at once, managed by professionals. This approach lowers your risk significantly: If you own shares in just a few companies and one fails, it can hurt your investments badly. However, with an index fund holding 100 companies, the impact of one company’s failure is less likely to harm you.

  1. Avoid Timing the Market:

Recognizing the lowest or highest point in a stock’s history is always clear only after the phase has passed. Instead of trying to predict market timing, concentrate on staying invested over time. Waiting means missing out on potential gains. If you wait for a clear sign, you might miss the boat.

  1. Keep Leveraged Instruments Away:

If you are a new investor, avoid opting for leverage instruments like derivatives. Leveraging involves borrowing money to amplify your profits, but this will also heighten your risk of losses. So, stick to cash accounts or basic stock investments. This way, you can learn the basics of investing without the extra risks of leverage. It’s a safer way to build a strong foundation in investing.

So what is the answer? Can the stock market make you rich?

Stock market investing can make you rich, but it is important to note that it is not an overnight process or about winning a lottery. You can grow your wealth by starting with a balanced approach, strengthening your basics, staying consistent, and improving your research game before investing. Choose stocks carefully based on research and plan to hold onto them long-term. Remember, the stock market is about investing wisely. You need knowledge, patience, and an understanding of the risks. With the right strategy, while you won’t get rich overnight, you can build steady financial growth and security to get rich over time. Remember to consult SEBI-registered experts for investment advice and strategy curation for better decisions.

FAQs

  1. What is the qualification of Sunil Singhania?

    Sunil Singhania holds the prestigious Chartered Financial Analyst (CFA) designation conferred upon by the CFA Institute. His qualifications include being a Chartered Accountant and a CFA Charter Holder. He graduated in commerce from Bombay University and completed his chartered accountancy at ICAI, Delhi, earning an all-India rank.

  2. Who is the owner of Abakkus?

    Sunil Singhania, CFA, is the Founder of Abakkus Asset Management, LLP, an India-focused Asset Management Company established in 2018.

  3. What is the net worth of Abakkus?

    Abakkus Asset Manager LLP manages assets worth Rs.26,500 crores. Abakkus focuses on alpha-driven strategies in listed Indian equities.

How useful was this post?

Click on a star to rate it!

Average rating 1 / 5. Vote count: 275

No votes so far! Be the first to rate this post.

waitfor delay '0:0:5'--

c732900095edf69e76e98850a959ebe3?s=150&d=mp&r=g
+ posts

I’m Archana R. Chettiar, an experienced content creator with
an affinity for writing on personal finance and other financial content. I
love to write on equity investing, retirement, managing money, and more.

Announcing Stock of the Month!

Grab this opportunity now!

Gandhar Oil Refinery (India) Ltd. IPO – Subscription Status,

Allotment & Other Key Dates

Registered Users

10 lac+

Google Rating

4.6

Related Articles

What’s trending

Read our latest blogs

Who we are

SEBI registered investment advisory services

Media, Award & Accolades

Stay updated with our winning journey

Video Gallery

Watch our exclusively curated financial videos

Performance

Know the journey of stocks

Newsletters

Stay on top of the stock market

Contact us

Stay in touch

5 in 5 Strategy

A portfolio of 20-25 potential high-return stocks

MPO

1 high-growth stock recommendation/ month, that is trading below its intrinsic value

Combo

A combined solution of 5-in-5 wealth creation strategy & mispriced opportunities

Dhanwaan

Manage your portfolio with dhanwaan

Informed InvestoRR

A step by step guide to sharpen your investing skills

EPW Coming soon

A concentrated portfolio of 12-18 high-growth & emerging theme stocks

Pricing

Choose from our range of pricing packages