The Motley Fool

Why you shouldn’t want to get rich quick in the stock market

For many people, buying and selling shares is a possible ‘get rich quick’ scheme. Clearly, there are times when this will work. Sometimes share prices can move quickly and this can provide investors with high profits in a relatively short space of time.

However, the reality is that the risks of buying and selling over a short time period are significant. Indeed, timing the market could prove to be an inferior strategy when compared to focusing on an investor’s ‘time in the market’.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Opportunity cost

Perhaps the major risk of short-term investing is the opportunity cost from not holding shares for long enough. Even if a short-term investment works out as planned and an investor generates a high return, they are likely to then sell up in search of another opportunity. However, in many cases the optimum strategy could be to hold on to the company in question, since it may offer even greater growth in the long run.

Likewise, many short-term investors may seek to sell their underperforming shares. This can sometimes be a sound strategy, since there may be better opportunities elsewhere. However, often share prices are volatile and fluctuate in value. This does not necessarily mean they will fail to deliver high growth rates in the long run. Therefore, adopting a patient outlook can be highly worthwhile.

Lower returns

Some short-term investors will seek to take time out from investing if they do not see opportunities to profit. While having assets other than shares is generally a good idea due to the diversification benefits, not having enough exposure to shares means an investor will miss out compounded returns. Over time, they can make a large difference to overall returns, and it is long-term investors who will benefit, rather than their short-termist peers.

In addition, short-term investing is much more expensive than a buy-and-hold strategy. While the cost of buying and selling shares has fallen in recent years, frequent trading can still lead to high commission costs which eat away at overall returns. And with the effect of compounding factored-in, even a small difference in total returns after costs can lead to a significant difference over time.

Quality of life

While the primary reason for investing in shares is to generate a relatively high return in order to meet financial goals, quality of life may also be of importance to some investors. Short-term investing and attempts to ‘get rich quick’ can lead to a significant workload as time is required to continually find new opportunities. This can affect an investor’s quality of life, while the stress and worry of losing money on some investments can do likewise.

Long-term investing is usually less time-intensive, while investors generally find paper losses easier to cope with than ones which are crystallised. Alongside the potential for higher returns, this means that a long-term strategy may be a better option for most people when it comes to buying and selling shares.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US $12.3 TRILLION out of thin air…

And if you click here, we’ll show you something that could be key to unlocking 5G’s full potential...

It’s just ONE innovation from a little-known US company that has quietly spent years preparing for this exact moment…

But you need to get in before the crowd catches onto this ‘sleeping giant’.

Click here to learn more.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.