Tesla, GameStop, Hertz, Dogecoin. Retailers continue to dominate financial media headlines. Some people may be wondering what makes trading different from investing, which is better? For investors who are saving for retirement for long-term purposes, speculative bets on single stocks rarely make sense. But that does not mean that it is a bad idea to trade actively or to pick up a flyer on a particular company. In life, as in everything, it comes in moderation.
Trading vs. long-term investments
Choosing Stocks for Your Accounts և Active trading is a very different strategy compared to long-term investments. Individual investors who frequently buy or sell stocks can make decisions based on factors such as momentum, brand protection, very low stock prices, perception of industry growth, or, as recently demonstrated by offers on online forums like Reddit.
As an investment strategy, trading usually booms or falls. For investors who bet heavily on a few names or move aggressively են out of trades in an attempt to conquer the market, trading is more accurately classified as a gambler. And it does not have to be a bad thing. Many people really enjoy playing Blackjack and can make a lot of money doing it. But that does not mean you have to put your 401 (k) or prepaid savings in the slot machine.
In contrast, long-term investors focus mainly on diversification, risk-adjusted returns, fully invested, low turnover, and time-tested investment principles. Traders try to choose the next unicorn or make a quick profit. Long-term investors usually tend to adopt a formal asset allocation strategy և make a few changes.
Diversification is a strategy that helps reduce volatility և improve returns by adjusting risks. During the downturn, the large-scale portfolio will generally not lose as much centralized placement as it could. Long-term investors diversify into different classes of assets, such as stocks and bonds, as well as, like the asset class, small, medium-sized US equity.
Long-term investors are not trying to hit households … They are looking for reliable bases և hits.
Is trading a good idea? Advantages and disadvantages of stock ընտր stock selection
Interest in the markets ք Buying and selling stocks is generally not a bad thing. It poses a risk only when individuals are taking too many risks and putting their financial situation at risk. This is the main disadvantage of commercial investments.
Here are some recent examples of how volatile earnings can be from trading ընտր stock options.
Investors who bought shares in GameStop on January 27, 2021, would lose almost 55% of their investments by April 21, 2021. Total S&P 500 revenue during this period was almost 12%. If you bought the GameStop just a day earlier, you would actually have a 7% profit compared to almost 9% of the S&P 500. And buying a stock on January 1 and selling it on January 27 would give S&P an incredible 1.740% return, which was essentially flat.
Tesla եր Hertz
In 2020, Tesla recovered more than 743% against a loss of almost 92% of the blocking Hertz, while the S&P 500 gross revenue exceeded 18%. From the beginning of the year to 2021 (until April 21), the return of Tesla is about 5.5%, and Hertz – almost 36%. Once again, the S&P is in the middle with 11.6%.
Risk vs. return
The above examples are deliberately chosen for points to illustrate traders’ instability, risk, and potential rewards. Even if the stock brings in huge profits, you can not make a profit if you do not buy by accident and sell at the right time. Keep in mind that stocks do not always go up. One of the reasons finding the right time to buy and sell stocks is that there is no way markets will react to changes in capital markets.
Having a “play” account to get involved in stock options with a full understanding of the risks is the best way for individual investors to approach trading. In most cases, trading versus investing should not be a double standard.
Instead, think of these as actions that you must take on a regular basis to meet your long-term needs and desires. To the extent that you are interested in stock options, you only want to trade in an amount that will not significantly affect your financial situation if it is reduced to zero.
One of the challenges of trading a brokerage account is tax consequences. It is easy to buy and sell stocks with just a few clicks, but the tax impact is not always that simple. Short-term capital gains are taxed as regular income, which can push you to a higher tax rate և change your eligibility for tax deductions or loans.
Laundry sales can be difficult to follow with some brokerage firms such as Robinhood. Non-traditional investment platforms such as SoFi և Robinhood also do not allow the sale of special investment lots. This means that you can not isolate stocks to offset or reduce profits subject to other gains.
Advantages and disadvantages of long-term investments
Make no mistake, long-term investments are not sexy. It’s all about the investment risk you need to make a plan, stick to it, and achieve your goals.
It is a common misconception that individuals need to make really aggressive investments in order to retire early or become financially independent. When it comes to achieving financial goals, reducing instability is really possible. If your account loses 25%, you will need 33% income to return to the pair. And that means the stock is coming back at all.
The biggest disadvantage of long-term investments is the fear of missing out (FOMO). If you happen to pick stocks or read about the growth of Bitcoin, it is tempting to think “if only you …”. But the reality is that no one has a crystal ball.
Think about what you think would be worse. Put only 5% of your money in double, or put 50% of your money in a half-shared, never-reversible stock.
Tax planning opportunities
Long-term investments can also offer tax planning opportunities that are commonly unavailable in the stock selection approach. When you do not trade regularly, you reduce your portfolio turnover, which can help reduce your tax bill. And when you really need to sell a fund, if you work with a financial advisor, they can work to neutralize the tax impact by choosing special lots or tax loss crops.
Financial planning և forecasts
Money management based on long-term investment principles provides an opportunity for financial forecasting, as the range of future results is less opaque. Choosing the right stocks or selling stock options after an IPO can drastically change your financial picture, but you need to have a plan for the realistic probability that it will never happen. This makes it very difficult to plan for the future.
However, most long-term investment strategies use historical data, ratios ումները trends գնահատ to assess how asset classes have worked in different market conditions և the range of potential returns և losses. This data makes it possible to focus on the financial plan to make more confident decisions, such as when retiring.
When trading or investing, make decisions about your risk tolerance և goals, not someone else’s.
It’s easy to get caught up in the markets these days. Every day there is a headline that stock jumps or cryptocurrencies make millionaires (even if it started as a joke). When deciding how to invest your money in trading, always keep your value in mind. Ask yourself what you hope to achieve,: the impact on your financial situation if it does not go as planned.
The only confidence in financial markets is that there are no sure things. Unfortunately, the latest trading game makes it much easier for people to forget that they have real money online.