Are you an Investor or a Trader? What's the difference?

For those who don't know me personally, I'm Michael Guthrie, a seasoned investor, entrepreneur, and capital raiser at Pacific Capital LLC. As someone who has come from humble beginnings, I've learned firsthand how financial wealth can greatly impact the quality of life for myself and those I love. While having wealth doesn't guarantee happiness, it does provide the freedom to prioritize what matters most and make choices that align with your values. When you're not in survival mode, you have the luxury to make decisions that bring you joy and fulfillment. In essence, wealth gives you better options and the privilege to experience life in a more meaningful way.

In my journey to build generational wealth, I've walked the path of being an employee, a business owner, and ultimately, an investor and capital raiser. My goal is to create opportunities for myself and others to achieve our individual financial goals.

As I transitioned from being a business owner to an investor, I explored various investment instruments. During this time, I experimented with trading stocks and forex while also allocating a portion of my portfolio to less volatile investments. You may be in a similar position right now, searching for ways to increase your financial wealth. You may be deciding whether to pursue trading or investing. But before making that decision, it's essential to understand the differences between these two approaches.

In both trading and investing...

• There's a fundamental principle: buying low and selling high.
• Both require a deep understanding of the forces of demand and supply.
• Both are inherently fraught with risks and varying levels of volatility.
• Market structure is always in play, regardless of whether you're a trader or investor, as market movements occur at different speeds and frequencies. Whether the market is experiencing a bullish trend, a bearish downturn, or consolidating its gains, there will always be times of growth, decline, and stability.

Now, they are different in terms of:

• Liquidity: Trading offers higher liquidity as it is easier to enter and exit a trade compared to an investment.
• Ease of Entry: In trading, you can start with a very small account, but investing often requires a minimum investment amount, which can vary depending on the type of investment.
• Tax benefits: Trading is often taxed as ordinary income, with no long-term capital gains and strict wash sale rules, whereas investing can generate long-term capital gains with lower tax rates, offers tax-deferred growth, and allows for step-up in basis, providing more flexibility and potential tax advantages.
• Timeframe: Investing usually takes time or has a longer hold period compared to trading. With trading, you can get in and out of markets in just minutes depending on your strategy, however, risks could be higher, which leads us to the next point.
• Volatility and Risks: While risk is inherent in all financial endeavors, trading is particularly susceptible to volatility, which amplifies the risk due to market psychology and news-driven fluctuations. In contrast, investing typically involves a lower pace of volatility, but risk is still present.

Should I be a trader or an investor?

Ultimately, there is no one-size-fits-all answer to this question, and success in trading or investing depends on individual circumstances. While I'm not here to dictate what you can or can't do, I encourage you to reflect on your lifestyle and long-term goals before making a decision. Let me tell you my story:

When I was trading, I initially assumed it was easy to succeed. I got deep into technical analysis, market structure, and price action. I experimented with various approaches, including scalping and swing trading. However, as a business owner, I found it challenging to set my trades and forget, constantly needing to monitor charts and adjust my strategy. The psychological aspect of trading proved to be the most difficult part, as the thrill of winning and the temptation to revenge trade after losses were hard to overcome. In the end, while I did experience some small wins, I realized that trading wasn't the sustainable activity for me.

On the other hand, my less volatile investments have been more consistent, with fluctuations that are easier to manage. The psychological aspect of being an investor is much more manageable for me. Unlike trading, where you can exit a position quickly, investing requires a more disciplined approach. The hardest part is selecting a good investment based on your investment criteria and fundamentals. Once you've set your investment, you can check in periodically to monitor its progress. No way to revenge trade :D!

The returns may not be as spectacular, but the magic of compounding is at work as I consistently invest in assets that yield higher returns. Alternative investing, which involves tax deductions, has been another win for me, allowing me to save on taxes and make more investments.

Comparing both, I have found that less volatile investments suit my lifestyle and goals better. I appreciate the stability they provide, which gives me a sense of peace and security that's essential to my overall well-being. While I acknowledge that trading can be a lucrative endeavor for some people, I believe that the psychological demands of trading make it less suitable for everyone.

How about you? What's your story? Have you tried doing both?

My mission is to build a community of like-minded people who are passionate about building a wealthy life with meaning and purpose! Let's have a conversation!