If you’re an investor there’s a good chance you’ve tried day trading, or want to try it. I’m here to tell you not to. Why? Because day trading sucks!
It’s time-consuming, stressful, and there’s a good chance you’ll never make a dime off it.
Now this might sound histrionic, but let me explain myself.
Let The Results Speak For Themselves
Most day traders lose money. The people who win are big institutional investors making options plays at their hedge fund or international firm.
That’s not a secret either. In fact, 90% of day traders lose money in the long-run.
The guys you see on Instagram or YouTube driving Lamborghinis and showing off their penthouses are all selling courses and membership groups. I’d bet money that most of their profits come from selling information products, not from actual trading.
Many forums and Facebook groups also showcase how the average trader does. I love reading Wall Street Bets (it’s great fun), but most people there lose money.
Here’s an image (link to the original thread) I saw the other day:
Active trading like this is very time consuming, yet the poster still lost money.
Aim For The Least Amount Off Effort And Highest Rewards
Investing (probably) won’t make you rich. This is especially true if you’re working with any amount of capital under the $1 – $5 million range.
Getting a 10% return on $100,000 sounds nice. But how much time and effort will that take? Especially when traditional S&P 500 index funds average 7% – 9% per year. And those take zero extra effort on your part.
This is one of the reasons day trading sucks. While you’re getting slightly better returns, you’re dumping a lot of time and brain power into market timing, research, and a whole slew of other difficult activities. On top of this, you’re often taxed at a different rate (short-term capital gains) which really eat into your profits.
Let’s say a passive investor and a trader both start with $100,000.
The passive investor sees 6% gains in one year (it was a sideways market), and the trader enjoys 15% returns (it turns out they have a real knack for market timing).
In this example, the trader earned $9,000 more than the passive investor (before taxes). Not bad, but are there easier ways to make that amount of money?
Of course!
Maybe the passive investor started a side business, or got a part-time job, or worked overtime. All these things would pay far more, while also being far easier to do.
You Work Hard For Your Money, Don’t Risk It!
Barring a depression or recession, your money is generally going to be pretty stable in a broad market index fund like VOO or VT.
There’s very little chance you’ll lose money long-term.
As Henry Browne put it: Your career is your primary means of wealth. Your investments help protect and grow this money.
In other words, getting rich requires you to focus on your active income. Passive Income (like dividend stocks or bonds) help accelerate your current wealth. Don’t risk your money gambling on some market situation that’s out of your control.
If Day Trading Sucks, Then What’s The Alternative?
Now that we’ve established why day trading is a bad idea (unless you’re a Wall Street wizard), let’s focus on some practical ways ordinary people can make money through stocks.
This is the most reliable path to building wealth. It’s also the method Warren Buffett recommends.
You buy stocks (or index funds) in strong, blue chip companies that will be around for decades to come. Personally, I’d suggest buying into a fund like VOO, SPY, or VT where you’re diversified across all the biggest and most reliable businesses.
A personal favorite, this is where you’re paid monthly (or quarterly) just for holding a particular stock or index fund.
You’ll usually earn a few cents per share, but this adds up fast. This month, for example, I’ve collected almost $500 in dividend payments. Not bad at all!
Also, dividend investing overlaps with long-term holdings. Many funds like VOO, SPY, and VT pay regular dividends.
A very safe, low-risk way to build wealth. These funds offer the smallest returns, but they’re often considered “free money” due to the incredibly limited downsides.
If you’re completely new to investing and just want a safe starting place, check out either of these two options. I personally recommend the CIT No Penalty Money Market for very low-risk gains. It’s a great introduction to wealth building.
Anyway, there you have it. Day trading sucks, but serious investing is a fantastic tool for building your networth and growing your money.
P.S. Looking for a great, easy to use and inexpensive investment platform? Why not join Robinhood. This popular investment app offers commission free trades on thousands of stocks, index funds, and crypto currencies. Best of all, you’ll get one free stock when you join using this referral link.
