Updated: Jun 13
I wanted to start investing. Or rather, I thought I should be. I kept hearing people talk about their "portfolio". What they were buying and selling and how much they made/or lost. I thought I must be a step behind. I was missing out. I must not make be making enough money to invest. They must know more than I do. They must be smarter, wealthier, have better connections. It must be too complicated for me. If everyone was doing it and understood the stock market then they must be getting ahead...shouldn't I be too?! Was I doing something wrong?
Then I learned the truth: Lots of people had the same questions I did! Few people understand all facets of the financial markets and...here is the kicker....To get ahed...you don't have to! I was already investing! I was an Investor! Wha!? How could that be when I understood so little about the stock market?
Turns out, it wasn't about what I was, an investor, that was confusing me.
It was about what I wasn't: a trader. Now that was confusing.
A-HA: I was already an Investor! What a Relief!
Like a lot of people, I was confusing Trading and Investing as if they were the same thing. And while they both seek to earn profits from participating in the stock market, the similarities end there. This gave me comfort and clarity that I did not have to worry about the stock market everyday to have a plan to get ahead! Here is what I learned:
You do NOT have to know how to buy and sell individual stocks
to understand your portfolio, participate in the financial markets,
have a plan, or get ahead!
Yep, you read that right. No need to have a broker on speed dial calling throughout the day ordering "buy now!" No need to study what an individual company is going to do this week, next month, or even next year. You don't even need to read the 250 page prospectus or attend investor calls.
And you are still an investor!
Definition: Investing: in·vest·ing /inˈvestiNG/
Investors (Hey that's me!) seek larger returns over an extended period through buying and holding assets.
Definition: Trading: trad·ing /ˈtrādiNG/
Traders look to move stocks in and out of their portfolio often enough to earn smaller, more frequent payouts. This may be months or quarters but can even be as frequently as weeks or less than a day!
What Investing is Not:
To be clear, my a-ha came when I learned that Investing is NOT Trading.
With most traders, the objective is short term profits. Immediate satisfaction. A trader is likely to study and bet on the present performance of a company vs. the company’s long-term prospects.
Traders seek to anticipate what direction the stock will move next
and how they as a trader, can profit from that move.
Trading involves short-term strategies to maximize returns daily, monthly, or quarterly. Traders will attempt to make transactions that can help them profit quickly from fluctuating markets.
While trading as an activity can meet the needs of some, it was a such a sigh of relief for me to learn that a valid, common and strategic way to engage in the stock markets is to solely focus on growing wealth over the long term. I could be an investor without ever having to buy or sell an individual stock.
The Day I Became an Investor and...
Did. Not. Even. Know it!
I remember sitting in the back office of my first management job at a hotel filling out the forms. I was told that if I contributed 6% of my salary to my 401k I would get a company match and that was a good thing. So I did. No more. No less. There were several choices of where I could put that money. I don't remember how I selected what to buy with my 6% contribution. At the time, that did not seem like the most important aspect of the process. I had no idea what all the choices meant anyway so I think I asked my boss where I should put it and checked the box he recommended.
That day, in my 20's earning somewhere around 25k a year...I became and investor and a participant in the financial markets! Wha?! How did I miss it? And yeah, for anyone keeping track of the