Once you settle into a preferred way of investing your money, it’s common to ask about the upside and downside of a given technique. It’s human nature to second-guess ourselves, and wonder whether we’re doing the right thing. The bright side of the situation is that every method for earning money has its own pros and cons. Two basic, but diametrically opposed, strategies are listed below, with pros and cons for each.
People who work full-time or part-time as day-traders never carry a position overnight and usually get into and out of a transaction in a matter of hours, sometimes minutes.
Pros: It’s possible to learn the craft if you’re dedicated, spend many weeks doing preliminary research on the stocks you intend to trade, and take part in simulated action in a realistic environment. Most newcomers to the profession spend at least a month using fictitious account balances in order to learn how to place orders and enter/exit trades quickly. The financial rewards can be significant and even full-time traders typically spend just a few hours per day buying and selling. Part-timers can spend as little time as they wish, perhaps making just one or two purchases and sales per week. It’s up to your own budget and personal preferences how much money, energy, and time you wish to devote.
Cons: You have to be dedicated, disciplined, and have enough capital to make it through the lulls and slumps. The pressure, if you’re not used to it, can be oppressive unless you ease into the practice. It is possible to lose a substantial sum before learning to turn a profit.
If you invest as a primary way to earn money in a self-directed IRA or other kind of account based on decades-long time horizons, then you are a classic long-term investor. Many folks who pursue this activity do it only a few hours per week and don’t deal with large sums of money at any given time.
Pros: It’s a low-pressure pursuit that doesn’t call for large amounts of capital. The core skill is regularity. Most practitioners set their accounts to auto-pilot and purchase the same set of blue-chip stocks or government securities on a timed basis. Others add variety to the technique by selecting different stocks or assets each time they add to the portfolio. You can choose to devote as much or as little time as you wish. Most of your efforts are directed towards research and evaluation of various instruments, like bonds, corporate shares, real estate, and precious metals.
Cons: It’s nearly impossible to make a profession of long-term investing unless you get licensed as either a broker or financial advisor and sell your services. The time horizons are so long, that by definition, there’s no way to earn a steady current income. Perhaps the biggest drawback is making guesses about how the economy and your particular selections will do 10, 20, 30, or more years down the road. A few bad choices can have a significant impact on the total value of your portfolio.