This week I want to clear up the difference between trading and investing.
Many people are successful in one or the other and some people do both separately and still manage it well. The biggest danger lies in the crossover of the two and letting your trades become investments or your investments become trades. This happens with new traders/investors who do not know the difference between the two and therefore end up making mistakes, not obvious to them, but glaringly obvious to the experienced hand.
First let's establish what each of them is, the major similarities and the biggest single difference and some reasons why trading and investing must not overlap.
Trading versus Investing
Trading and investing have one major thing in common; we are placing our money somewhere today and hoping to make a profit on it in the future. Every time we position our money in this fashion, there is a downside risk that we could lose money and this is equally apparent for both traders and investors. They sound quite similar right? It's no surprise that people new to this domain get them confused and the lines are often blurred.
The biggest difference between the two is the time period over which we plan to keep our money in its new position. Investments are normally for years or even decades. People invest in the family home, they invest in rental property, they invest in Kiwisaver and other managed investm...