One of the fundamental decisions a young investor must make is whether they are a trader or an investor. Most people tend toward one or the other, and choosing one certainly doesn’t preclude dabbling in the other, but it’s good to know which side you primarily come down on. The difference is simple.
A trader plans a strategy around short term market fluctuations. He might jump in and out of positions several times (or several dozen times) each day. The trader believes there is money to be made in the ebb and flow of the market day. Most traders prefer to be flat at the closing bell, which means they don’t hold open positions over night.
The investor looks at longer term market direction – months, years, decades – and employs a buy and hold strategy that, like the trader, takes advantage of a trend. The difference being that this trend takes much longer to play out. The investor does not concern himself with the daily hiccups that pull prices back and forth. They prefer to step back, look for quality positions, and add to them regularly.
One could extend this analogy to real estate. A trader would be a person who buys undervalued houses and flips them quickly for profit. An investor is one who acquires a property and holds onto it, allowing for long term price appreciation to create wealth. The young investor will likely be drawn to one side or the other and it makes sense to pay attention to your preference. Trading/investing against your natural style could make you a little crazy. Here’s an idea from Young Wealth. If you can’t make up your mind, try this – put most of your portfolio in investments and keep a small percentage, say 10%, to play short term trends. This is one way to satisfy both desires.
The Young Wealth Team
Flickr / artemuestra
