Hi, Im Riley...and in this article I want to discuss the topic of investing vs trading. A lot of people reading this probably are already leaning towards trading over investing. In this brief educational article, I want to share some key knowledge that I've been withholding from the Tradingview community ever since I started publishing indicators on this website.
What is this knowledge? In one word: ETFs. I discovered trading at a very young age (18)...and when I did, I was truly astounded at the technical analysis side of it. Now I'm 20 years old, and after 2 years of intense studying of trading the finanical markets...I've come to the conclusion that investing is an equally effective if not better alternative than trading. Specically, investing in ETFs.
To this date, I haven't actually traded yet...(cause I still live with my parents lol, and brokers generally want proof you live on your own before you start trading)... but I have lots of knowledge through reading hundreds of trading articles online, watching hundreds of trading videos, and creating indicators for the TV community over the past 2 yrs. So now that I've established my reputation, lets talk about ETFs and why they're so good...
ETFs...Exchange Traded Funds. What are they? An ETF is essentially a collection of stocks all compiled into one security that you (the investor) can buy at an affordable price. Take for example the S&P500 ETF , "SPY", probably the most well known ETF . It consists of 500 US stocks. Currently it costs $434 per unit (as I'm writing this article). That means you can buy this ETF for under $500 and get exposure to 500 different stocks. Effectively, you are diversifying your risk because now you have limited exposure to any individual stock within that 500 stock portfolio. You have effectively bought the stock market!
ETFs incur low commission fees...Why? because you only have to buy it once and hold on to it for the rest of your life until you decide to retire. Generally, they are also a much safer way of making profits in the finanical markets than trading. Whats so awesome about ETF investing is that the stock market as a whole is very predictable in the long run...it always goes up! Thats what ETF investing takes advantage of...long term and predictable gains.
I've done a lot of research on my own into different forms of trading...CFDs & futures trading, stock trading, and option trading. And something I want to note is that no matter how you slice or dice it, now matter how much you can argue trading is superior to investing, one thing is for sure: trading involves LOTS of work and time spent everyday...something that investing bypasses. Plus, trading can be an emotional rollercoaster. So if your a lazy guy like me whos come to the realization that the effort spent in trading is A LOT and probably not worth it for the extra gains...than ETF investing might be a better choice for you.
Please like, comment, share, and follow me! Good luck :)
1. You are buying inefficient business and efficient business alike. It is similar to giving everyone in class full score because you are too lazy to evaluate each of them. As an impact you will be discouraging good business and encouraging bad and inefficient business.
2. Rebalancing leads to buy high sell low. TSLA was included in SP500 when it was flying high. Which made ETFs to buy TSLA at higher price. Similarly sell XOM at lower price when it was removed from SP500. Since then TSLA has gone down about 30% and XOM has gone up a lot. This happens on every rebalance.
But, yes, there are advantages. You don’t have to worry about fundamentals when trading ETFs. This makes it very desirable instrument for technical trading. Simple strategies based on buying the dip can yield very good results and considerably lesser time. If you are comfortable with volatility, May be leveraged ETFs can yield much better results with timing.
racer8
⋅
@HeWhoMustNotBeNamed, could you perhaps elaborate upon your first point? I don't know what you mean by "inefficient" business. I agree with your 2nd point. Thanks.
stresslessness
⋅
@racer8, not sure what he meant, would love to hear from him as I'm a fan of both of your work.
Maybe he means that an index usually have a few leaders pulling the laggards along? Selecting a basket of leaders can optimize returns but increases decision complexity and reduces diversification, increasing risk and possible returns.
Guess it mainly depends on how active you want to be. If you are young and don't need the money the compounding should take care of itself in the end.
IMO it doesn't need to be a binary decision, in the end trading & investing is just buying and selling. Pick a slower timeframe for less stress and noise. Your impressive indicators tell me you could speed up the process of accumulation if you enjoy it :) hope you keep up the good work, thanks!
gvmahesh
⋅
True message. If understand above message save time in life
1. You are buying inefficient business and efficient business alike. It is similar to giving everyone in class full score because you are too lazy to evaluate each of them. As an impact you will be discouraging good business and encouraging bad and inefficient business.
2. Rebalancing leads to buy high sell low. TSLA was included in SP500 when it was flying high. Which made ETFs to buy TSLA at higher price. Similarly sell XOM at lower price when it was removed from SP500. Since then TSLA has gone down about 30% and XOM has gone up a lot. This happens on every rebalance.
But, yes, there are advantages. You don’t have to worry about fundamentals when trading ETFs. This makes it very desirable instrument for technical trading. Simple strategies based on buying the dip can yield very good results and considerably lesser time. If you are comfortable with volatility, May be leveraged ETFs can yield much better results with timing.