Do you want to improve your trading? You will be hard pressed to find a trader who is not also an investor, but not all investors are traders. It is important to make the distinction between trading vs. investing. As a matter of fact, if you throw all traders and investors together, traders make up a mere fraction.
Trading is a job whereas the goal of investing is to create a passive income stream for the future.
Most people conduct themselves as investors and this makes sense. We are building towards a larger goal of becoming financially free and having our investments provide our income.
How You Probably Got Started
Chances are you began your trading journey as an investor, most people do. Putting money into a 401(k) plan at work, investing an inheritance from grandma or grandpa, or buying into Apple because the talking heads are making predictions on CNBC are all common ways people becoming involved in the markets.
From here, the itch takes over and they want to learn how the pro's make money buying and selling stocks all day long, flipping their positions for millions of dollars, then going out and buying fancy cars, spending their weekends gallivanting around Europe on their private Yachts. Only their attempt at trading for a career fails and they simply lose boatloads of money leaving them worse off than when they started.
99% of Trader's Lose Money
I'd like to clarify the benefits of trading for a career and investing for your future. Let me start by saying that little story above, about the pro trader's gallivanting around Europe is only true in the smallest of instances. The truth is 99% of "traders" lose money, that leaves 1% (the successful traders) to make 99% of the profits, the rest simply lead a life of struggle and frustration trying to simply turn a profit year after year (if they even last that long).
Now I'm not a financial adviser, CPA, or certified financial planner, but I am a trader and an investor who, with baby steps, have been able to grow my "nest egg" with a few very simple steps. The money that I set aside is so minuscule that I don't even end up missing at the end of each week, yet it has allowed me to grow my investments substantially.
What's on the Horizon
There are many benefits to both, but the thing that sets trading apart from investing is the time horizon in which you will ring the register and make use of the profits. In a sense everyone is an investor, you invest in yourself when you purchase a book you grow smarter, when you purchase a computer you're leveraging your ability to get more work done and faster. It's the same when you set aside money in a security to grow for later use.
The Larger Goal
I work to live, not live to work. Trading is a job to me, it is something I physically work at each day that brings money in and puts food on the table. Extracting money from my trading profits and allocating it towards investments is an essential part of building towards a larger goal.
Some questions to ask yourself when looking to invest:
- What will happen tomorrow if you don't start planning for your future today?
- What dollar amount can you start setting aside each week to put towards your future?
- Are there ways you bring in an addition $50-$100 a month? Money you can use to invest.
- At what age will you need your investments to start paying you?
Don't Wait, Get Started Investing Today!
Each day you wait to invest in your future is a day lost that you can never get back. With the power of compounding interest the sooner you get started the more massive your nest egg can become. Someone who starts in their 40s or 50s is at a large disadvantage to someone who's starting in their 20s or 30s, but don't be discouraged, starting late is much better than not starting at all and there are ways to play catch-up.
"Don't put off till tomorrow, what you can do today."
- Thomas Jefferson
What you can do today is create a financial road map for yourself. Outline your goals. Picture the life you want to live 5, 10 and 25 years from now and how much money you will need to live that lifestyle (roughly). What would an average day be like?
Online brokerage firms such as Thinkorswim make it very easy to get started and open your own individual retirement accounts and start building for your future.
First Crawl, then Walk
Come up with a dollar amount that you won't miss and start setting that aside each week. 1 or 2% of your monthly income can be used as a starting point, more if you can afford. Think if you set aside $25 each week, at the end of one year you would have accumulated $1300. Investing this money into a portfolio or basic asset allocation fund and letting the interest and dividends reinvest, this $25 a week can turn into $8000 in just 5 years, $20,000 in 10 years, and over $100,000 in 25 years (those numbers are using an 8% growth rate: the average rate of return the stock market has produced which includes the great depression). The point is that a seemingly small, weekly investment is all it takes to grow a large nest egg.
Now more than ever you must take control in shaping your own future. We cannot depend on government programs like social security and pension plans to be there for us. Plus, the fact is, it's just a smart thing to do. A penny saved is a penny earned, and a little bit invested now, goes a long way down the road. Rather than buy that new toy, boat, snowmobile, or car, you can invest that money today and use the interest you make tomorrow to pay the monthly payments while still holding onto your principle allowing it to continue to grow.
No comments:
Post a Comment