A lot of Wall Street pros like to use professional words interchangeably. Two of the most common words used all the time in the same sentence are “investor” and “stock trader”. On the surface, they may seem like the same exact thing. Don’t investors and stock traders both buy and sell stock on Wall Street? A closer look, however, will reveal that these two terms do not mean the same thing, and it might be helpful for you to learn the difference between them.
The true key to finding the difference between a stock trader and an investor lies in the answer to the following question: are you in it for short-term profits, or are you investing for the long haul?
What is an Investor?
An investor is someone who is interested in building up an accumulation of wealth over long periods of time. This is a person who starts contributing to stocks at an early age and leaves their portfolio in the market to build up profits and interests over many, many years. Then, by the time that person reaches retirement age, they have earned themselves a nice nest egg with plenty of funds to last them through their later years.
There are many investors in the market because investing is one of the best ways to build wealth over the long term. For example, a NerdWallet report showed that an average investment account in the stock market returns millions of more dollars in retirement funds than an average savings account or cash pot does. This is because some of the biggest stock market indexes grow over time. If you invested in the stock market with an indexed company back in 2008, your profits have likely increased by over 200% by now.
What is a Stock Trader?
A stock trader, on the other hand, is someone who wants short-term gains. Traders look for opportunities to find the biggest profits possible in the shortest amount of time. Most stock traders do not hold on to stocks very often; most of the time, they will keep a hold on their stocks for a few days or a few weeks before selling. In some cases, traders will hold onto shares for just a few minutes and then trade it again when the price spikes up.
Stock traders find many different ways to invest. Some are “day traders”, meaning they only focus on what is happening within a 24-hour period. Others do focus more on long-term goals but still buy and trade quickly in the meantime.
How can you invest safely while setting yourself up for future success? Here are a few tips:
- Remember to give yourself time and patience. An investment is for the long haul, and not something you will see a profit on in a very long time.
- Start out with a plan before committing to your first investment. Know how to diversify and balance what you hold, and know how to manage your portfolio.
- Keep your eye on your original goals and move with the market to stay on target.
The way you want to make money, as well as your purpose for making money, is really what will drive you to decide whether trading or investing is a better option for you.