Investing vs Speculating
I’ve been investing since I was 18 which is when I got my first 401K at my first full time job. I also setup a E-Trade account during the dotcom boom with $1k, which I then proceeded to lose very quickly. The money from my 401K is still with me and has grown over the years, I’ve since converted it to a Roth IRA which allows me to contribute after I’ve been taxed on my income but when I retire can be withdrawn tax free. Traditional IRA’s work in the reverse. You are contribute tax free, but are taxed when you withdraw during retirement.
The Roth IRA works out for me because I’m young. I’m a very aggressive investor and take higher risk in return for higher returns. My Roth IRA account is up 32% this year while my personal trading account is up only 13% this year. By biggest winners in my retirement account are Google, JP Morgan Chase, GE and Altria Group. I choose Google because I like its long term outlook, the others I choose because they are stable and they pay dividends. Notice that I said I’m very aggressive yet I trade in very few dotcom’s. One of my techniqes is to trade in options as opposed to stocks. Options give you more leverage, with $3K for example you could purchase 7 shares of google at its current price ($400) but with options you can control 100 shares. And benefit financially the same way if you had owned 100 shares.
I am moving more of my investment and business stragies towards speculating as opposed to investing with these rough definitions; investing you use 100% of your money to earn a 10% gain, with speculating you invest 10% of your money for a 100% gain. The only danger of speculating is that you have to be prepared to lose your 10%. Options are not simple I’ve been doing it for a few years and have had my bumps but I think people, especially young people, should really be using options to invest as opposed to stocks. The Chicago Board of Options gives free online and in person classes. Take a class, it cost nothing. Then apply for options trading ability with your brokerage firm and give it a try. Just remember, 10% for 100%.