Day Trading V’s Investing V’s Saving. What’s the Difference?
Short of stuffing money under the mattress, there are three big choices in managing your finances; saving, day trading, and investing. These three approaches all worlds apart from each other, but there’s no right or wrong answer to the difficult question of which is best.
Let’s weigh them up anyway, and give each a fair shake!
The first and simplest option, is to keep it in a piggy bank. Opening a bank account should be free and easy, offering a safe place to stash your cash. It’s boring, but it’s necessary. Mobile banking has made it a breeze to check your balance anywhere and yes, you will earn interest on the money you store away.
That percentage rate of interest is paid on your balance, and is closely tied to interest rates set by powerful Central Banks like the Federal Reserve and the Bank of England.
High-yield savings accounts (HYSAs) are out there offering even better interest rates than normal, but there’s always a catch! Expect to be asked to lock in big sums of money for a long number of years.
Many shrewd financiers will carve out an emergency fund and bury it in a normal savings bank account. That way, it’s money that can be accessed at a moment’s notice for bills, medical costs, big life events, debt repayments, or just a little treat.
Then, you’re in the clear to venture into the markets.
A big departure from safe savings, trading represents a more enterprising approach to money management. It’s a world of high—octane action, where traders rely on technical signals hidden within charts. There are hundreds or possibly thousands of indicators, correlations, and formations which traders use to predict where stocks could go, but it’s all very short-term.
The fast-moving lifestyle of a trader sells itself really well and is a marketers dream, but it’s not without criticisms. To buy a stock, you need a broker. Brokers charge a fee for every market action taken, so traders rapidly buying and selling face an uphill battle.
As for day-in-day-out risk, be prepared to lose everything. Humans are natural born pattern-seekers, and it’s easy to mistake shapes in the clouds for opportunities to make money.
If saving sounded too dull and day trading sounded too hit and miss, try investing. Rather than looking only at the stock chart, active investors believe in what’s underneath. Weeks are spent turning businesses inside out and upside down, searching for clues that might reveal how much money they’ll make in the future. Any positive surprises in that department will move the stock up, but what investors really love, is the stock of a company they can hold forever. That way, they benefit from lower taxes, lower brokerage costs, and the magic of compounding!
Investing, however, isn’t just for full-time market detectives. Funds bring together a basket of pre-selected businesses for you to track passively, all fitting different themes. They allow you to get on with your life and have your money working for you in the background, but of course all investments can go down.
Investors always need to know why they own what they own, and stay disciplined when markets tank. Unlike saving, invested money can do a disappearing act. And unlike day trading, you can only sit back and watch.
Some buy stocks, some short stocks (betting against them), and some draw an instant passive income from dividend-paying stocks. Most can be sold at a moment’s notice, and light dabbles in Invstr’s fantasy finance can go a long to honing your contrarian instincts. Investing works!
Time for you to take charge!
Priority number one is not to lose money, but making it is a close second. Carve out that emergency fund, pay off any onerous debts, and nail down a few fantasy stock market bets. You work hard for your money. Time for it to work hard for you!