Investing vs. Trading: Which Are You Doing?

by Lee Distad

“Investing” is one of the most misused words in our language, especially when talking about finances.

Oftentimes, people use the word “investment” in a non-financial sense when purchasing something whose value is liable to depreciate, such as “I finally invested in a new laptop.”

But when it comes to the stock market, there’s a difference between investing and active trading. In short: investing is not a speculative bid.

Trade Today, Invest for the Long Run

Investing implies that you’ve researched your decision and have made a commitment to buy and hold a security over a multi-year timeframe.

Trading is the purchase and sale of your chosen security over a much shorter time frame; it could be days or even minutes long. Often that goes hand-in-hand with less exhaustive research into the security’s fundamentals.

Generally speaking, long-term, buy-and-hold investing will better serve the small investor whose goal is growing his portfolio. Very few people are able to successfully beat the market with their short-term stock picks or active management.

Set a Goal, Then Stick to It

The difference between a good long-term investment and a good short-term trade can be huge. As a result, the small investor needs to have a clear picture of his goals and investment parameters, then stick to them.

The last thing you want to do is move your goal posts in the middle of the game. If you do that, you’ll have no plan at all — and that’s a formula for financial failure.

I don’t want to sound as if I’m completely discouraging active trading. From time to time, opportunities for a short-term trade will come up in the market. If you’ve got the discretionary cash to take advantage of those opportunities, you might benefit from taking advantage of them.

But if your goal is the long-term growth of your portfolio, you need to apportion the majority of your resources to buy-and-hold and look at active trading as an entirely secondary strategy, if you even do it at all.

The content contained in this blog represents the opinions of Mr. Distad. This commentary may contain forward-looking statements and definetely contains sarcasm and rude sentiments. This commentary in no way constitutes a solicitation of business or investment advice. If you’re looking for stock picks from me, look somewhere else. Really, what were you thinking? If you came here because you were trolling Google looking for someone to help you get rich in only twenty minutes a month, you need to seriously re-evaluate your worldview. This blog is intended solely for the entertainment of the reader, and the author, and not neccessarily in that order.

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