When markets are volatile, people tend to listen more to the various media. CNBC for example, has content on TV and the internet virtually 24/7. But is that content directed towards your goals, or is it more about those who trade constantly? Go to the CNBC.com website and look at the shows to understand their perspective-note daily show names like “Fast Money”, and “Halftime Report” and when reading the descriptions of these shows notice how many times the words “trader” or “trading” are used.
While CNBC and other similar content is interesting and sometimes entertaining, it really is not pointed towards the investor, but instead towards that of the trader. Likely media content for investors would be so repetitive and boring, the viewers and advertisers would not support it.
So, which are you-investor or trader? The distinction is critical. According to the online investing dictionary Investopedia, “The main difference between a trader and an investor is the duration for which the person holds the asset. Investors tend to have a long-term horizon, whereas traders tend to hold assets for shorter periods of time in order to capitalize on short-term trends.” Our firm would say that if you have long-term objectives to be funded (retirement, kid’s college, legacy assets to future generations); they are most likely going to be best served by being a long-term investor. Here are some ways you are well served as investor (not a trader):
- Income taxes can be minimized for long-term investors. vs. trader taxed on short-term gains. Short-term gains for assets held less than one-year are taxed as ordinary income with rates about twice that of long-term capital gains.
- Trading costs are higher for a trader over any typical year because they incur costs with each trade, and they trade much more frequently than a long-term investor.
Unsettling and down markets are opportunities for the investor. Here are some quotes from a letter written by Warren Buffett on October 16, 2008 (the height of the Credit Crisis):
“In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.”
“I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month-or a year-from now.”
“A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful.”
Mr. Buffett’s words were good advice then, and they are good advice now. So turn down the volume on CNBC, remember you are an investor (at least most of you are) and not a trader and appreciate the opportunity the market presents investors to buy (with spare cash or maybe just via rebalance) during each sell-off.
Let’s start a conversation about wealth management that’s focused on planning for ultimately what is most important to you.
Grandfather (Papa), Red Rocks Hiker, Golf-a-holic
Investment Manager / President
Payne Wealth Partners
601 N Cross Pointe Blvd.
Phone: 812-477-6221 office
Phone: 812-602-6301 direct
Share your thoughts by tweeting to @PayneWealth or follow us for more useful info!The information in this material is only as current as the date indicted, and may be superseded by subsequent market events or for other reasons. Statements concerning financial market trends are based on current market conditions, which are subject to change and which Payne Wealth Partners, Inc. does not undertake to update. While all information prepared in this document is believed to be accurate, any statements of opinion constitute only current opinions of Payne Wealth Partners, Inc., which are subject to change and which Payne Wealth Partners, Inc. does not undertake to update. Accordingly, you should not put undue reliance on these statements.