Investing, trading, these are two fundamentally different activities, both of which you are going to be used in creating your wealth, in building up your wealth feast. It’s vitally important that you understand the difference between these two.
Both are actions, both are techniques that you’re going to be used in building up your wealth. But many people get this confused, and so can end up actually never creating real sustainable wealth and getting to that point of financial freedom, remember, which 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, the earning money activity. This is your goal. This is financial freedom.
Trading is when there’s an active activity involving you in creating money. It is in the actual exchange of that buying and selling that you’re hoping to make money. So the key aspect around trading is you’re doing the activity to generate cash. It happens at a buy and sells. So trading is just exactly the same as you know going and buying some product wholesale and selling it retail.
Trading can happen in shares, a lot of people sell, buy and sell shares, hoping to either make money on the price going up or going down. Yeah, you can make money both ways. But the point is these are active strategies with the intention of generating cash, generating money. Forex trading, commodity trading, but also property trading so if you buy a property to renovate and then sell it, that is a trading activity.
The very fact that they’re active activities means that you’re not actually creating assets. But trading is really important on your wealth journey because this is how you can supplement and get additional money in addition to earned income from say a day job or your business to supplement your asset draw. So this buys and sells activity then releases the money, hopefully, because sometimes not if you haven’t done it very well. But the point is, and this is really important, with the trading, is that this money shouldn’t then be consumed. It should be done and brought over into investing.
Investing versus Trading
Investing is when you either create or buy an asset, something that you’re going to end up, this asset, is something that you’re going to hold for a longer-term period and preferably you may even hold it for the longer period of time, but the intention of is keeping that thing in your life, and you get the value, you grow your wealth, through two things, capital growth, growth, so that is where its value increases.
For example in shares, this could be your index tracker fund. This could be individual share in a company. But you buy it 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. This would be on the property side. You’d be buying a property or doing a property or creating a development, but holding it in your life to increase your asset worth by its increased value and the income it generates say in the rental.
This could be in businesses where you spend time and energy creating assets. These could be products or programmes or systems, things that can work for you or be getting that automatic, automated, Laundromat happening, where the asset then earns that money for you in income but also grow in value. So this is what an asset side is, the actual asset earns you the income, the wealth, and this is what you’re wanting to be building up, versus, in trading, your active activity of buying and selling creates cash, which then can be used to buy assets or can be used to for another trading activity to get a bigger cash deal.
So when you’re growing your wealth, you want to be doing both of these things. Because generally for most people just to earn income and putting that in their10% into the asset part or so forth isn’t going to be enough. But if you want to accelerate your time to freedom, you want to be looking at what additional trading activity could you be doing. At the end of the day, you release the money, which then you want to keep growing.
These can become your cash-generating machines, but what you want to make sure that you’re always doing as you go along is you are converting a substantial proportion of the cash you generated from your trading activity into assets. Because the bottom line at the end of the day, it is only assets that you can feed off to create freedom because it’s only assets that you can get to the point where it’s truly passive. So trading is active, investing is more passive.