Investing in Stocks: Are You a Trader or Investor?

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Are you regularly investing in stocks? Do you consider yourself a trader or investor? If you're not sure, a look at your goals is an easy way to find out.

Welcome back to another post in my how to invest in stocks series. One of the topics that had been suggested to me to cover was the idea of the differences between what is considered an investor versus what is considered a trader. While it may seem like there is not a whole lot of difference between the two, there really is and you do yourself a disservice by not knowing which camp you’re in. Investing in stocks can be confusing for many, though by doing some simple analysis you can cut down on that confusion and get on with investing in the stock market. If you’re interested in reading other posts in this series, you can check them out below:

Ask Yourself What You Want


When you start investing in stocks, or anything investment-related (I am using this very generally as it can apply to anything from stocks to real estate) you first need to determine what your goal is. Are you looking specifically at investing for retirement or are you saving for your children’s college tuition? Or, are you trying to reach multiple goals? All of that needs to be looked at and considered before determining what your investment goal is.

If you find yourself with multiple goals, one great way to attack this is to think of your investment portfolio as a pie which you can divide up into pieces. Then, you can assign those pieces to the specific goals you have, making it possible for you work towards achieving them.

We have one part of our portfolio where I am heavily investing in stocks and trading more often – which is through our accounts at Optionshouse, but also have a very large portion of our portfolio in more traditional buy and hold investing where we’re in index funds and a few solid dividend paying stocks – which is through our accounts at Scottrade that is geared towards our retirement planning.

This requires a bit more work, but it works with our needs and goals. One big key is determining what your goals are and realizing that these goals will likely change over time. In fact, I can pretty much guarantee it in most cases. It is therefore very important to keep a somewhat active eye over your investments. That does not have to mean watching it daily, but it also does not mean buying and forgetting.

What is a Trader?


Now that we have addressed goals we can move on to the distinction between what constitutes a trader and an investor. Keep in mind that I am speaking generally here and am not intending to criticize one over another, just trying to give a basic description of each. That said, a stock trader is someone who is actively trading stocks on a regular basis.

Whether they’re day trading a handful of stocks or dozens of stocks, their approach is much more short term in nature and they’re seeking to grow their investment portfolios by taking advantage of short term swings while holding stocks from as little as minutes at a time to maybe a day or so. They’re generally professional traders, or at the very least, someone who is somewhat well versed in regards to investing in stocks or options.

Ultimately, a trader is someone who is much more speculative than the average retail investor and is much more comfortable with the inherent risk of being in the stock market. I will say that if you’re investing in stocks and wanting to be more of a trader, make sure you know what you’re getting yourself into to make sure it fits with your risk appetite, not to mention the costs associated with more regular stock trading.

What is an Investor?


If the stock trader is the hare, then an investor (generally speaking) is the tortoise in the stock market. Whereas the trader is looking at the short term view of things, the investor is keeping their eye towards the end result. They choose to view investing in stocks, or mutual funds/ETFs, as a marathon and not a sprint.

They’re generally going to be someone who is closer to a buy and hold investor, or someone who is more apt to stay the course when it comes to their investments.

Ultimately, an investor is someone who is going to look at the nuts and bolts of a company and stick with them, not being spooked because something changes, but will roll with the punches because they have a good feeling about the given investment choice they’ve made.

Think of an investor as someone who is investing in stocks for retirement and actively adding to their positions on a regular basis while rebalancing their portfolios to best allocate their investments.

Investing in Stocks Takes Work, Regardless of Your Approach


My desire to not really paint one or the other in a bad light as they both have their shortcomings and benefits. Whichever you consider yourself, investing in stocks takes time and work – it just might look a little different depending on your approach. If you’re uncertain which camp you fit in to, then I encourage you to go back and analyze your goals, nail down what helps you sleep at night and determine what your knowledge level is.

The sad fact is that too many retail investors fail to do any of this analysis, open a brokerage account and just blindly start investing in stocks on a whim. I spoke with too many investors to count on a daily basis who did not know which they were and unfortunately too many betrayed their ultimate goals as a result.

I guess part of that goes back to not having a solid investment plan and allowing fear to be their guide when it comes to making investment decisions.

I know that if you’re just starting out investing in stocks that it can be overwhelming to determine what you should do or where you should start and that is fine, though do not allow that to hold you back. Sit down and spend some time educating yourself on investing, determine what your goals are and determining if you’re more of an investor or trader. That time spent will serve you well as you start down the road of investing in stocks and will benefit you and your portfolio in the long run.


What’s your approach when investing in stocks? Are you more of a trader or an investor? Could you ever be a day trader?

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John is the founder of Frugal Rules, a dad, husband and veteran of the financial services industry whose writing has been featured in Forbes, CNBC, Yahoo Finance and more.

Passionate about helping people learn from his mistakes, John shares financial tools and tips to help you enjoy the freedom that comes from living frugally. One of his favorite tools is Personal Capital , which he used to plan for retirement and keep track of his finances in less than 15 minutes each month.

Another one of John's passions is helping people save $80 per month by axing their expensive cable subscriptions and replacing them with more affordable ones, like Hulu with Live TV.


  • Jon @ MoneySmartGuides says:

    I am definitely an investor. I don’t bother trying to trade and time the market. I just stick to a long-term plan and invest more money in the market when I have the funds to do so. I do my best to ignore the short-term volatility of the market and focus on the long-term trends, which is positive.

    • John says:

      That is definitely the bent I have Jon. I have a small portion that I trade with, but overall, I am looking at the long term and just staying the course.

  • Adam @ Money Rebound says:

    Nice distinction between the two here John and a great giveaway! I couldn’t imagine sitting at a desk trading away all day, too stressful for me. I much prefer to have a longer term strategy.

  • DC @ Young Adult Money says:

    Great to be co-hosting with you! I definitely am an investor and rarely make changes to my 401k, and pretty much never trade stocks in my individual account.

  • Thomas | Your Daily Finance says:

    I agree that no matter what you are its going to take work. I am kind of a mix. I do believe in buy and hold but I take my profits on the swings and buy on the dips. I know a lot of buy/hold people and they are never taking the profits. If you buy a stock @ 10 and it goes up to 15 sell some and take your profits. You make nothing if is drops back down to 10 and you never sold. I have made most my money selling and buying the same stocks.

    • John says:

      I am a bit of a mix myself, though I veer more towards a buy and hold investor. I do like to take profits, I just did that actually on a few holdings, and move on to something else.

  • pauline says:

    Most of the time I have no idea what I am doing, does gambler count haha? When I trade forex I check out position every few days but with stocks I just leave them there for months.

  • Matt Becker says:

    I think you know where I stand on this. I hope most people learn to stand on the side of the investor, but most of the media unfortunately focuses more on trading.

    • John says:

      Yes I do Matt and I would tend to agree. Many don’t belong actively trading for a variety of reasons. It can be done, though it requires a special personality in my opinion.

    • Dividend investing Martin says:

      Matt, true, when you see all the hype from media one day buy this the next day sell it and buy that! Most of the time I end up laughing.

  • canadianbudgetbinder says:

    Thanks for explaining the difference between the investor and the trader. It’s nice to get simple breakdowns when it comes to this type of information especially for those just learning. Great contest.

  • Holly@ClubThrifty says:

    I would consider myself an investor….because I’m in it for the long haul!

    Sweet giveaway, John!

  • MonicaOnMoney says:

    Awesome giveaway! Thank you! I’m an investor for sure, I don’t follow trading mostly because of how time consuming it it. So I couldn’t be a day trader.

  • Mark Ross | Think Rich. Be Free. says:

    I think I’m an investor because I like to see myself investing for the long-term. To have some money that I can use when I retire. By the way, great giveaways man! I’ll be joining. πŸ™‚

    • John says:

      Having a goal like that is what many people miss out on. If you’re long term minded then you’re likely an investor.

  • Andrew@LivingRichCheaply says:

    I’m an investor. I thought I could be a day trader back in the day during the internet boom when everyone was making money and day trading. I’ve learned from my past experiences and now I am a buy and hold investor…and more specifically an investor in index funds. Though I do keep a small amount where I trade just to satisfy my day trading urge. Small amount though!

    • John says:

      I am very close to that myself Andrew. Day trading can be exciting for a time, but it takes a lot of work and time. Not to mention having a pretty high pain threshold. πŸ˜‰

  • No Waste says:

    I was abysmal failure as a trader…

    So…now I’m an investor! Index funds only please!

    Well except that one stock…but don’t tell anyone!

  • Mr. Utopia @ Personal Finance Utopia says:

    I would venture to say that most people who visit sites like Frugal Rules are investors. Traders can have huge highs and equally massive lows (even if doing it on a small scale) and that doesn’t really fit the profile of most of us. I liken trading to educated gambling. Plus, the more trading you do the more fees you pay and that eats away a possible returns (or makes the losses even greater)!

    • John says:

      I would tend to agree with that. I agree, there can be a lot of highs & lows with trading. Some traders know what they’re doing and many others are just throwing money out the window. Those fees can be killers and many fail to see that.

  • Nick @ says:

    Definitely an investor!

  • Brad @ says:

    I definitely consider myself an investor and not a trader. I’m looking at a 40+ year time horizon on my investing, so the likelihood that I could come out ahead of the overall market on some “lucky” stock picks seems to be extremely low to me.

    I’ll take some low cost mutual funds/ETFs wtih regular contributions and consider that a pretty good plan for the long-term.

    • John says:

      That’s definitely the wise approach to take Brad. It’s not “sexy” by any means, but slow and steady tend to win the race. Going with low cost funds and regularly contributing to them, with a somewhat watchful eye, is a great plan to run with.

  • Girl Meets Debt says:

    Thank you for breaking those 2 terms down into language even I could understand John πŸ˜‰ Right now I am neither, but once I start, I am going to go the investor route!

  • Kim@Eyesonthedollar says:

    Ooh I want to be a gambler like Pauline! No m certainly a tortoise and I’m for the long haul.

  • Todd @ says:

    What would you say is your personal split? As in, what “proportion” of you is investor, and how much of you is trader? 100/0? 90/10? 70/30?

    Thanks for breaking it down so simply!

    • John says:

      That’s a good question Todd. It depends on what’s going on in the market but I lean heavily towards the 90/10 approach with 10% being siphoned off for trading. I may get close to 15-20% every once in a while, but that is few and far between.

  • anna says:

    I’m too risk-averse to be a trader, investor is for sure where I’d lie. Very informational, John, nice work!

  • Kostas says:

    If this is what counts then I am definitely a trader. When in profit, I tend to trade out and then run away, just not the one for nervous waiting, heh.

    • John says:

      Would you consider yourself a day trader, or someone that is not a buy and holder?

      • Kostas says:

        Well, now that you ask like this, I guess the second option would be closer to the truth. Just not a fan of big swings either way, so banking on profit whenever the opportunity arises.

        • John says:

          Ok, I think I know what you’re saying now. I see exactly where you’re coming from now. I tend towards that as well, to a certain extent, as long as it makes sense fundamentally to make the move.

  • Amy says:

    If I win the tablet, I will give it to my husband as a gift. The other prizes may be put toward retirement, or Chritmas shopping. As far as whether or not I am a trader or an investor, I believe I am an investor. I invest in Target Retirement Date mutual funds.

  • Dividend investing Martin says:

    I was once a trader, or wanted to be. I admire Nicolas Darvas or Jesse Livermore and what they achieved. And I wanted to be like them. But I wasn’t successful. I made money, but I also lost them. And I no longer want to use any of my cash for riskier trading, so I switched to investing. I still use trading methods to buy stocks, I use TA to time my best entry, but it is more a game than trading. Once I buy I stay. I only have a few sell criteria, so mostly I will end up holding forever (unless some of my sell criteria are hit).
    Great article.

    • John says:

      That is a huge thing that many overlook Martin – the loss that many active traders either open themselves up to or simply take. Other than my small portion that I do a little bit of trading in I am much more of a buy and holder, unless fundamentals change and my sell targets are hit.

  • Untemplater says:

    I’m definitely more of a tortoise/investor. I like looking long term with minimal work in the short term. I have a fairly low risk tolerance.

  • Financial Independence says:

    I was never a successful trader – I would pick reasonable positions however I did not have the nerve to hold positions long enough once they were making a profit. Multiple times I took a 5-10% profit on a position, only to watch the price surge another 30-40% in the coming months.

    I much prefer long term investing, ideally buying a position and holding onto it permanently. Specifically I’m a big believer in the efficiency of an index fund – why take a position in just a few companies when you can take a position in the whole market? This will provide more consistent dividends and less volatile growth – just what a long term investor wants.

    • John says:

      It can be hard to find that balance of when to take profits and not making foolish decisions, which is why so few are very good at active trading.

      That’s a great point on investing in index funds. It’s not the “sexy” choice, but slow and steady wins the race.

  • The Warrior says:

    At heart, I’m a trader. In my head, I’m an investor. So how do I combat this?

    Here’s my #1 tip for those of us who have the urge to trade but the wits the invest:

    Take 10-15% of what you are investing (so $10-15 of every $100 of investable money) and allocate to a completely separate account for trading. That way 85% of what you are saving for investing gets invested, but you still get your 10-15% for satisfying that trading urge.

    Hope that helps

    The Warrior

    • John says:

      That’s exactly the approach I take. I like to be able to trade a bit, but would never devote a big chunk of our portfolio to it. Having a little bit on the side to be able to do some trading scratches that itch for me. Thanks for stopping by!

  • Derek Chamberlain with says:

    Trading is a good way to make other people money. Don’t do it unless you want it to be your entire life! There is no half way! It will cause you a tremendous amount of stress – I’d recommend investing for the long term.

    • Derek Chamberlain with says:

      Also, just speaking from experience – as a former trader I’ve personally lost $800 in about 4 seconds. You are literally leveraged about 50X, so any large swings against you can do real damage to your account and your ego πŸ™‚

      Definitely not for the squeamish!

  • Jack Heald says:

    I have a different take: if you are putting money at risk by purchasing securities with the intention of selling those securities at some point in the future, then you are a trader. The amount of time you hold those securities is irrelevant, because your purpose in buying them is to sell them at a profit.

    I believe there’s a fundamental misunderstanding about the level of risk involved in long-time-period trading – what you call investing. The last 4 years have been very good for people who bought and held stocks. But what if you bought six years ago? Well, in that case, you just got back to break-even in June. And what if you bought 13 years ago? You’ve had your money parked in an asset that – due to the corrosive effects of inflation – has less purchasing power than it did 13 years ago.

    The whole “buy and hold” mentality is a lousy way to take care of your money, unless you get lucky and buy at a market bottom. There’s nothing wrong with being lucky; it’s my favorite state. But it’s not a good investment strategy.

    I created an inflation-adjusted chart of the S&P 500 to visualize the actual effects of inflation on the value of a broad-market index. The chart is almost a year old now, but it makes the point. Here’s the link:

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