Is Active Trading The Answer?
One of the main reasons many of us get into investing is to become financially independent. Who isn't trying to amass a portfolio with enough income to ensure that we don't have to work when we should be playing golf or traveling the world. While there are several strategies to invest, is active trading one of the ways to become a millionaire?
For those investors who want to achieve that million dollar portfolio, you may want to read The Millionaire Next Door by Thomas Stanley and William Danko. While it wont help you identify great stock picks (but investorandtrader. com can help), it will help you to establish the difference between those who dream of having a million dollar net worth, and those who do it. You may be surprised at the answers.
While I won't give away all the secrets, I will share one of the surprising findings which impact investors over the long term.
95% owned stocks
9% of investors held for less than 1 year
1% held for a few days
1% held for a few weeks
7% held for a few months
Less than 10%, less than 1 in 10 people with net worth of $1 millionaire or more actively trade their portfolios. Most definitions of active traders would mean that 1 in 100 are active traders. 99% of millionaires do not actively trade their positions. They hold for long periods of time. They find good companies and let the companies make them money.
The biggest problem with active trading is the commission, and the taxes. Your brokerage gets paid whether you make money or not. Making the presumption that you're trading with a discount broker, you're paying $20 ($10 to buy, $10 to sell) each time you trade. If you do make money, you're paying taxes on that gain. At the end of the year, you get to keep a portion. Make 2 trades per week, and you will spend over $2000 a year in commission. If you lost money, add $2000 to your losses. If you made money, subtract tax, and then subtract $2000 more.
It takes a lot of successful trades to make money. While it can happen, sometimes, just finding a good quality stock and sticking to them, might just be your key to a million dollar portfolio.
That's just one guys opinion.