Trading Vs Investing: Which is Better for Good Returns?

Trade for good returns

Stock trading is an exciting way to manage money. Trading is more about riding the dynamics of the market. It may generate a profit at some point, but this type of profit cannot be sustained over time. As a result, you can never be sure how much profit you will make or how much money you will rake in over any given period of time. You cannot intend to achieve a financial goal through trading if you want to map your investment with a financial goal.

Trading cannot capture a long cycle of outperformance that involves economies of scale and creating a profitable business model. Additionally, there is a transaction cost to trading. This is a very trivial question, but transaction costs can make a huge difference to your actual returns. When you factor in brokerage, statutory costs, and hidden costs such as illiquidity and spread risks, the cost of trading is quite high.

Trading or investing in stocks in the short term always carries a higher risk due to the market cycle. Short-term trading is also subject to a higher tax rate. If you sell your equity investment after less than a year, you will be subject to a 15% short-term capital gains tax, with no indexation benefit.

Invest for good returns

Invest for good returns

Investing is about long-term value. It is the process of buying and holding a portfolio of stocks, baskets of stocks, mutual funds, bonds and other investment instruments to gradually build wealth over time. time. Investments are often held for years or even decades to take advantage of benefits such as interest, dividends and stock splits. As markets are bound to fluctuate, investors will “ride” downtrends in the hope that prices will come back and any losses will soon be recouped.

For investors, market fundamentals such as price-earnings ratios and management expectations are often more relevant. Compounding refers to the fact that the longer you hold stocks, the more returns they generate and, therefore, the more your returns generate. Investing matches the longer swing moments of the stock market. Unlike trading, investing is much more profitable.

When you invest in a stock portfolio for a longer period, you are more likely to get out of market timing risk. Systematic risk can be better avoided if the portfolio is properly diversified. If you hold listed shares for more than one year, you are eligible to pay long-term capital gains tax at the rate of 10%, if your LTCG (long-term capital gain) exceeds 1 lakh during an exercise.

Conclusion

Conclusion

The return on a share is proportional to the risk associated with the investment. Diversification and systematic and frequent planning of investments are two approaches to reducing this risk. In general, having an interest in the stock market and buying and selling stocks is not a bad thing. It only becomes a problem when people take too many risks and jeopardize their financial situation. This is a major disadvantage of trading compared to investing.

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