To Day-Trade or Not?

With the pandemic causing shutdowns and people being stuck in their homes for a concerning amount of time, it is no surprise that day-trading has caught on. For those of you not familiar, day-trading is exactly what it sounds; buying or selling a stock every day in order to make a return. We’re going to look if day trading is worth it and what an investor should do.

Most people think day-trading is easy and all you have to do is buy low and sell high. That is far from the case; if it were that easy many financial professionals including myself wouldn’t have a job! There is a reason why making money is so difficult especially in finance when looking at day-trading. A lot of YouTube gurus will bombard you with tips on how to successfully turn $1 to $1mm in a day if you just buy their course, but what a lot of people overlook is that these “gurus” actually make their money by selling courses and not by day-trading. If they were so successful at day trading, why would they even sell their secret? If there was a true way to successfully day trade, they would never sell that method because theoretically the price of that method would be infinity!

Believe it or not, overall when it comes to the public markets passive fund management actually outperforms actively managed funds. Recessions don’t happen every year and a pandemic is not frequent; in these conditions holding a cheap and passively managed fund outperforms over half of the actively managed funds. These funds are managed by Wall Street who have billions of dollars worth of resources when it comes to staff, software, etc. If these guys can’t beat passively managed funds, what makes you think you can? In fact, even if the bank does have information that could potentially beat the market, they’re going to be looking out for themselves first instead of their customers so they’ll be making profits while leaving you the short end of the stick!

Unless you’re willing to put in the research and come up with a thesis when it comes to investing in the stock market, I recommend for majority of retail investors to stick to low-cost index funds. They’re cheap and will generate return over time due to compounding interest. The only time where actively managed funds will beat passively managed funds is in the private markets (latter isn’t even available for the most part in private markets) and it’s usually not accessible to retail investors unless you’re accredited. So don’t worry about temporary downs and just keep investing.

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