The Surest, Fastest Way to Get Poor Quickly

Ironically, the surest, fastest way to get poor quickly is to try to get rich quickly. -- Whitney Tilson

It's hard to get more ironic than that, isn't it? Tilson, founder and chief executive officer of Empire Financial Research (and a former contributor to The Motley Fool) shared that advice in his insightful book for young people, The Art of Playing Defense: How to Get Ahead by Not Falling Behind.

Image source: Getty Images.

Irony aside, Tilson is correct. Many common ways that people try to get rich also often deliver losses -- and potentially huge ones.

How to lose money? Let us count the ways...

Here's a little more of Tilson's quote:

I've known people who spent their whole lives building up their savings only to lose it all in some crazy, half-baked scheme. Common examples include investing everything in their own new business -- or someone else's -- and it fails; speculating in penny stocks; day trading stocks or, worse yet, options; or getting duped by some online or phone fraudster. Millions of people are ensnared in these traps every year.

Let's take a closer look at some of those strategies -- and a few others:

Lottery tickets

Buying a lottery ticket now and then for fun can be fine, but no one should be buying lots of tickets regularly, hoping to fund a comfortable retirement with lottery winnings. The odds of winning the Powerball jackpot were recently about 1 in 292,200,000 -- making it astronomically unlikely that you'll ever win.

Penny stocks

Penny stocks can be thought of as financial sirens luring inexperienced investors into dangerous territory. They can be almost irresistible, offering, for example, thousands of shares for mere hundreds of dollars. If a stock is trading for $0.20 per share, you can snag 2,500 shares for just $500. But alas, penny stocks can still fall farther. And often, penny stocks do crater, wiping out investors.

Day trading

Buying stocks, holding them for a few minutes or hours, and then selling them, is day trading -- a risky endeavor, reportedly causing the majority of its practitioners to lose a lot of money. Typically, they won't be seeking great and growing companies -- just ones that for some reason they expect to be worth a little more in a short period.

Investing "on margin"

Those who invest "on margin" are doing so with funds borrowed (legally) from their brokerage. It's a great way to amplify your gains, as you'll be able to invest more dollars -- but it will also amplify your losses, which can be devastating. Worse, you'll be paying interest on what you borrowed.

Options

There are many ways to invest with stocks options, some very risky and some much less so. But options trading is best left to experienced and savvy investors, and you can make millions without ever going near options.

Shorting stocks

When you short a stock, you are betting against it -- essentially selling (legally) borrowed shares at what you think is a high price and expecting to be able to buy back the shares and return them later at a lower price. You'll have the company working against you, though, as it's trying to make its share price rise.

Gambling in casinos or elsewhere

Gambling, obviously, is another high-risk way to try to get rich. Sure, some people do hit jackpots or succeed at various games of chance, but casinos wouldn't be in business if most gamblers made money.

Acting on hot stock tips

With a hot stock tip, you typically don't know the track record of the person recommending a stock. (And even if it's good, this idea could end up as one of their losers.) Also, if you buy without doing any research, you'll have no idea whether the company is sound or growing or has competitive advantages.

Chasing high-flying stocks

It's tempting to buy shares of a stock that has soared, but there's a decent chance that it has soared above its intrinsic value and is just as likely to retreat soon instead of rising further. Growth stocks can be profitable, but make sure you're buying them at a good price.

How to make money -- and possibly a lot of it

With that non-exhaustive (but still exhausting) list of bad ideas out of the way, here's how you can make a lot of money investing. Check out the table below, which shows how much you might amass over time if you average 8% annual growth and invest $7,500 or $15,000 each year:

Calculations by author.

How might you achieve average annual gains of 8% or more? Consider some powerful low-fee index funds, which can pack a punch and require little to no investing savviness.

Clearly, you can grow richer -- but it won't happen overnight, or even in a few years. But if you're diligent and persevere through market upturns and downturns, you can retire with significant wealth.