LET’S TALK MONEY: Day trading vs. standard investing

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Hi Taylor: I have some money I want to put into the stock market, and I’m wondering if I stand to make more through educated day trading or just standard investing.

I’ve been reading books on both and feel like I have a decent grasp of the market, but I wanted to ask someone with a little more experience. I’m hoping to put my money to work and actually generate some income. — Claire

Hey Claire: There are a few ways to answer this question. The first is, “it depends,” but I know that’s not a very helpful response. Here are some thoughts with a little more substance.

Day trading. This is the riskiest option. While no investment is a sure bet, long-term stock market returns almost always win out over what you’ll get from day trading.

In addition to the immediate and substantial risk, you end up losing a lot more of your investing money by way of transaction fees. You might see eight bucks as a drop in the bucket, but as those charges add up —and if you aren’t getting consistent returns on your trades — the difference between what you’ll make via day trading and what you’d make with long-term investments will be very stark.

Standard market investing. As far as generating income, you won’t be able to do that right away with standard investing. You can buy dividend-yielding stocks, which is a good way to bring in extra capital, but that probably won’t be enough to cover your bills.

Nevertheless, long-term investing will help you grow your money substantially and free you up to spend your regular earnings on alternative investments that can pay out more quickly.

If you have to choose between day trading and investing, I’d definitely urge you to go with option No. 2.

Investing for immediate returns. If this is about getting money now, there are other options to think about. You could try investing in a rental property that could generate monthly income; real estate has the potential to meet both your long- and short-term earnings goals.

It all depends on what you have to invest and what your objectives are. Alternative investments require a little more work to get started, but nothing more than what you’d have to put in to actually have success with day trading.

As far as getting the most out of your dollars, I’d stick with the investments over the risky trading. To generate income, I’d think about what alternatives might be available to you.

If you feel really compelled to day trade, make sure all your other investments are in order before you start. There’s so much risk with high-volume trading, and I’d hate for you to trade with money you can’t afford to lose. Good luck. —Taylor

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