Investing vs Day Trading

[00:00] Let's talk about investing versus trading and  which one is right for you. Now, when it comes   to investing, the barrier to entry is very low.  Everyone has access to it and it's super super  

[00:14] simple and not time consuming whatsoever. The  returns, however, is where there's a little bit of   an issue. On average, the S&P 500 or the overall  stock exchange on average has returned between $8  

[00:29] and 11% annually. So let's say you invested $100,  you would get $8 to $11 in return for the entire  

[00:41] year. Now investing is a longterm investment. You  are investing for the future. So if you let that   interest compound over time, it is the most  wonderful thing known to mankind. Compounding  

[00:57] interest is the ninth wonder of the world. And  how it works is basically your base capital,   the $100 plus, let's say 10%, which would give  you a new base capital of $110. 10% of 100 is  

[01:14] $10 plus the additional base capital.  Now, the following year, you were invested   $110 into the market. You get another 10%. You  add $11 this year. So, now your 110 is $121.  

[01:29] You see that extra bit that was added onto it?  That's where the magic is. That little extra bit,   that percentage that gets added to your capital  and compounded interest-wise over the course of  

[01:43] 50 years is something magical. Right here, you can  see percentage gained without compounded interest.   And next to it, you can see it with compounded  interest. And this is over 30 years. The amount  

[01:59] of money made due to the compound interest as  opposed to without it is absolutely insane. Now,   anybody can invest in the stock market. There  are things called index funds which basically  

[02:13] mimic the S&P 500 or the NASDAQ or the Dow Jones.  And it's a single asset that you can buy and that   portfolio has diversified into all of the S&P 500.  So instead of you doing it yourself and buying  

[02:30] each individual company, they allocate a specific  percentage to each company and have an index fund   that you can then invest into. This is how hedge  funds make their money. The hedge fund has their   portfolio and you give your money to a hedge  fund and they invest it in accordance with their  

[02:47] portfolio. Now investing is not without risk.  When I say on average you're getting 10% returns,   that's an overall average. Some years might be  20, some years might be minus 10. So you will  

[03:01] have losing years and you will have winning years.  But over time, the market has generally done this.   The worst part about investing is that you are  investing for a retirement fund. Correct? So when  

[03:16] you retire, you want to pull out your capital and  live your life as you wish as a retiree. Either   fishing or yaching or whatever, sailing. Now  let's say there is a huge market crash the year  

[03:30] that you want to retire. Your entire portfolio has  then decreased and you would get out having less   value than you did 2 years prior. This is where  chance, unluckiness or just bad happen stance  

[03:47] comes into play. The timing of your retirement  is relevant and some people just get unlucky.   Let's say you turned 65 in 2008, 2009.  There was a huge housing crisis. Basically,  

[04:00] your portfolio melted. It sucks. But eventually,  10 years later, it rebounded. But now you're 75.   You see what I'm getting at here? Now, let's get  into trading and if it's right for you. Trading is  

[04:14] a very high barrier to entry. You need to have  a large knowledge base and an extended period   of time where you've practiced this skill set  before you can prove to yourself that you are  

[04:26] good enough to trade your own capital in the live  markets. Now, the issue with this is that I've   seen traders be in this game for years and years  and years and yet they are still not profitable.  

[04:40] So, I don't know if that's due to lack of  consistency or strategy hopping or just   a mismanagement of funds and getting overly  emotional and not having a proper strategy.  

[04:54] But I've seen it thousands upon thousands upon  thousands upon thousands of times. And to myself,   I think you shouldn't be a day trader if you  hadn't practiced on a demo account and can prove  

[05:06] profitability to yourself before you enter in  real capital into the markets. Once you do that,   the real capital that you are trading, you  should be able to outperform the S&P 500,  

[05:20] that 10% annually, because of the amount of  time that you're dedicating to your career,   your job as a day trader, you should be able  to outperform the market. Because if you can't,  

[05:33] then it would be much more logical for you to just  become an investor and have freed up a bunch of   time versus spending 40 hours a week on trading  because you're working at something to outperform  

[05:46] the S&P 500. Whereas, if you do nothing, the S&P  500 gets 10%. On average, statistically over time.   So, the thing that you really have to ask yourself  is one, are you willing to put in the time,  

[06:02] energy, and consistency that it takes to become a  full-time day trader? If yes, the second question   you need to ask yourself is, am I able to prove  that I am able to outperform the overall stock  

[06:17] market more than 10% annually? If so, by  how much? And is it sustainable long term?   Can I do this for the next 10 to 15 to 20 years?  If the answer is no to any of those questions, you  

[06:31] should probably default to just being an investor.  This is something that has very little time input   and you can still have a full-time job with it. So  essentially, your job can pay for your day-to-day  

[06:43] living expenses and your investment can be for  your retirement or vacation money or however you   want to allocate your funds in your personal  life. This is just a quick food forthought   video. Can you outperform the S&P? If so, is it  worth your time? Because at the end of the day,  

[07:01] at the end of your life, you'll think, "How  much time did I waste sleeping? How much time   did I waste being hung over? How much time did  I waste at my job? What could I have done with  

[07:14] that time?" Because the time is a expiring asset.  Like it goes away and you never get it back. And   I would prefer that at the end of your time, you  don't look back and regret time not well spent.