This week on Money and Investing, Mitch Olarenshaw and I break down the key differences between trading and investing. We explore how time frames, risk management, and asset types affect your approach and discuss how you can use both strategies to build wealth.
1. Time frame matters
The biggest difference between trading and investing is time. Trading focuses on short-term moves, ranging from days to a few months, while investing is about the long game – holding assets for years to build value.
2. Types of assets
Traders typically deal with fast-moving assets like stocks, options, futures, and CFDs. Investors, on the other hand, focus on real estate, blue-chip stocks, ETFs, and bonds – assets that grow steadily over time.
3. Risk and reward
Trading requires strong risk management due to short-term market fluctuations. Investing carries long-term risk but benefits from market growth and compounding returns. Traders need sharper decision-making, while investors rely on patience and consistency.
4. Personality and skill set
Your personality plays a role in choosing between trading and investing. Detail-oriented and disciplined individuals may excel in trading, while patient, long-term thinkers may prefer investing. The best approach? Learn both to maximise your financial potential.
5. Can you do both?
Absolutely. Many successful investors trade for cash flow while using long-term investments to store wealth. By combining both strategies, you can create a balanced financial plan that fits your goals.
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