Trading and investing are two distinct approaches to building wealth in the stock market. While trading involves attempting to profit from short-term market fluctuations, investing aims to generate long-term wealth through a diversified portfolio of assets.
The average annual return for the stock market has been around 10.3% per year, while day traders have experienced only a 3.5% return. Despite this, many individuals are still allocating too much of their capital to trading, hoping for big wins rather than steady gains.
Investors understand that there's a time, place, and amount of money to trade with. They typically invest in a diversified portfolio and aim to make the most of their money through this strategy. Swing trading, or the "fun bucket," can make up around 10-15% of their portfolio, while day trading, or the "drunk bucket," should only make up around 5-10%.
Trading requires active management and can lead to higher fees and a lot more time invested. In contrast, investing is more passive, allowing individuals to buy and hold their investments over a longer period. Investors can compound their interest over time, leading to significant long-term gains.
While trading can be an exciting and potentially lucrative strategy, it's important to do it with far less capital than investing. Ultimately, investing has historically outperformed trading, and individuals should aim to allocate more of their capital toward this strategy for long-term wealth building.
What You’ll Learn:
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Why it’s important to diversify your portfolio.
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The differences between investing and trading.
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What the 3-bucket approach is.
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And much more!
Favorite Quote:
“Quick profits, from a psychological perspective, is rooted in greed.” -Serge Berger
