Investing over Trading

What is the difference between Investing and Trading stocks?

The simple version is a trader is someone who buys a stock with the intention of selling it off to make a profit from the sale. This usually requires allot of time, research, and timing. The goal is to buy the stock at its lowest price and sell it at its highest. Sounds simple but if you are not following all the news of the company, but the country and in some cases the world, you will miss your window to buy at the bottom or sell at the top. Depending on how much you are spending and how long you miss the window by could be the difference between making or loosing thousands of dollars.

Investing on the other hand is buying a stock.....and that's about it. You buy a small portion of a company you think will be around for the next few decades and just leave it there. No need to watch the news or track the companies projections everyday. As an Investor you aren't necessarily concerned if the stock price drops by 10 or 15 points in a day. In some cases you may even be happy to see a company you love drop this much so you can buy more at a better deal. Now the natural question that comes up is, "if you aren't selling the stock then how do you make any money?"

Dividends.

As a long term investor Dividends are your best friend and life blood. A dividend is a small amount of money that the company will pay their share holders from their profits. The company can choose what amount, if any, they pay to their share holders. Any company that offers shares can pay a dividend and most of the big companies do. It's a good way to encourage people to invest in your company.

Say for example Fake Co. pays a $0.10 Cent dividend on every share. If you have 100 shares, you will be paid $10 dollars. Sweet and simple. Now what you do with that $10 dollars is up to you. Your two choices are, 1. Take the money as cash and spend $10 somewhere, or 2. Take the $10 as a Fractional Share.

Fractional Shares are exactly what they sound like. A fraction of a share. So if the share is worth $100 and you are paid $10 in Dividends, you could take that payment as 1/10th of a share. As this happens and you keep buying more shares you will be paid more and more every time. Until eventually you are paid 1 full share in dividends. So now every Dividend payment you are gaining a full share until you are paid 2 shares, then 3,4,7,10. It keeps going on and on, if you don't pull any money out you will be getting paid a couple hundred a month until it is a couple thousand a month.

Now you can decide to either Keep letting your stocks gain more stocks, or start taking payments into your bank account. If you leave them in, eventually you will be getting paid enough money to live on, and invest some extra. This can give you the financial independence to live on your own and travel without worrying about where or when your next check will get to you. Also if you are invested in companies you use for your regular shopping then that money just keeps feeding your portfolio and wallet.

I hope this is easy enough to understand as a basic intro into investing. I will come up with some more examples and strategies for managing money and investing wisely. Next time I will explain a little more about how to find companies that are a smart investment for you personally. Also ways to shave down some pennies out of your budget to turn into dollars later!

P.S. Never forget that Investing and Trading are both forms of Gambling. Never put in more money then you are willing and able to loose. Never dump your rent money into the market because you got a "Hot tip". Investing is a slow long term game but it still has risks.