Many people use the words “trading” and “investing” interchangeably when, in reality, they are two fundamentally different activities and you need to understand the difference to be successful in building up your wealth feast.
Watch the video to get clarity on:
- the difference between investing and trading;
- the distinctive elements to know which is which; and
- how you use BOTH to grow your wealth in very different ways and for different purposes to create your freedom.
Understanding the difference is so important and many people get this confused, and end up never creating real sustainable wealth or achieving financial freedom.
Remember, financial freedom is where you’ve got assets that grow in value and earn you income so you no longer have to be involved in the value exchange.
Simply put, trading is when there’s an activity involving YOU in creating money. Take for example forex training, currency trading or options trading, the clue is in the word. The word trading means that there’s some kind of buy and sell activity and it’s in the actual exchange of that buying and selling that you’re hoping to make money. The key aspect around trading is you’re doing the activity to generate money. So trading in stocks and shares and any other asset is exactly the same as you know going and buying product wholesale and selling it retail.
The point is, trading involves active strategies with the intention of generating cash from the activity. Just because trading involves you and in some ways is just like having another job, doesn’t mean you shouldn’t do it.
Trading can be really important on your wealth journey because this is how you can supplement your earned income and get additional money into your asset pot. I did this in creating my own wealth feast in that I consciously did trading activities in both equities and investment property, to create cash to buy more assets and so accelerated my time to freedom.
What is investing?
Investing is when you either create or buy an asset, something that you’re going to hold for a longer-term period and benefit from the growth in value of the asset and the income it generates.
This again applies across all the asset classes. For example, in shares, such as your index tracker fund, you buy the fund with the intention of keeping it in your life and it helps expand your wealth by growing in value and generating income in the form of dividends. In investment property, you buy a property, renovate it to add or creating a development, but instead of selling you hold onto it to increase your asset worth by its increased value and the income it generates in rental.
With investing, the actual asset earns you the growth and the income, and creates the wealth versus in trading, your activity of buying and selling creates cash.
When you’re growing your wealth, you want to be doing both of these things. Because generally, for most of us who start this journey a bit late, just earning active income and putting 10% into the asset pot isn’t going to be enough. You need to increase your returns on your investments through things like leverage and savvy tax savings and add more into the pot through trading activities.
There you have it, the difference between trading versus investing and how you use both to create your freedom
In the comments below I’d love to know:
- In growing your asset pot, which activity – Investing or trading – have you been doing more of?
- What you learned in terms of what you need to be doing more of to create your freedom?
Keep taking steps every day to fill your asset drawer because they are the only things that can create your financial freedom and reinvest those trading gains – that’s the secret.