Have you ever heard people talk about what makes "a good investment"? What is a good investment? For most, this would be defined as a satisfactory return in the future for a tolerable amount of risk in the present. An investment is to say that if I dedicate resources today, be it land, labor, or capital, I will receive an adequate return for my resources in the future. However, investing is not trading. Traders put up vast amounts of risk on a daily basis for the hopes of profiting off of short-term fluctuating valuations in stock prices.
"Don't investors and traders buy and sell the same things?"
Well... no, they don't. Take one share of Apple common stock (AAPL), for example. An investor may read Apple financial statements, use apple products, research the technology and banking industries Apple deals in, and follow news regarding the company's new product offerings, leadership changes, and mergers and acquisitions. In lieu of all this information, the investor comes to the knowledge that Apple is a financially healthy company that shows continuous improvement and successful product launches over multiple decades with millions of satisfied customers (and growing). With this newfound knowledge, the investor purchases 1 share of Apple common stock to hold in his or her portfolio in order to receive a return in the form of business growth, leading to an appreciation in the value of the stock and potential dividend payouts from the company's future earnings. In this scenario, Apple common stock is used as an "investment" to the individual who will hold the security for a long period of time to reap future returns from the company's growth and earnings.
The trader, on the other hand, is dealing on fundamental, technical, and sentimental analysis of the security (Wikipedia). The trader is analyzing price and volume fluctuations of Apple common stock, historical trends of various metrics, and the overall feel of the market around Apple securities in order to hopefully time the buying and selling of the security for a short-term profit. A trader may potentially buy and sell hundreds or thousands of securities a day whilst looking for arbitrage opportunities and any signs to help him or her predict the actions of other market participants. This is to say that the trader is not purchasing the inherent value of Apple common stock; the trader is purchasing the idea of an under priced security relative to their prediction of what other individuals might do in the short-term.
Building Trust
For most Americans, it can be extremely daunting to put their hard earned capital into the market given this unstable atmosphere created by Wall Street and day traders alike. Both stock brokers and wealth managers earn a living off of trading activity via commissions, some of which cannot separate their own self-interest and bias from their fiduciary duty of how clients should deal with their personal finances. In the 2008 subprime mortgage crisis, when the housing market fell through the floor, Americans were left with an aversion to Wall Street like no other— and who can blame them? The results of the crash left 2.6 million Americans without jobs (New York Times) alone, not to mention the direct and downstream effects it had globally.
So where does investant.net get involved with all this? We advocate for being a responsible investor. You shouldn't have to worry about fluctuations in the stock market. What we believe, and will continue to write about and create and provide resources for, is in maintaining a disciplined and simplistic approach to personal finance. Think long-term! Be prepared in the short term. Eliminate any debt as soon as possible, hold a high yield savings, maximize your employer's match to your 401k, maximize your Roth IRA contributions, and then and only then should we increase our market exposure with an individual investment account. Take advantage of credit cards! Just don't carry a balance!
Take Small Steps
Personal finance and investing can be easy, automated, and out-of-mind. Remember that you're looking to make investments for your future— not play a betting game!
