Trading vs. investing: There is a difference

Tyler Kert
Tamarack Wealth Management

Every so often, a client will ask me what I think about a hot stock tip they heard from a friend or the latest short video they saw on TikTok. They’ve heard about people doubling their money on a single trade and start to believe that that’s the key to getting ahead. My answer is simple: trading and investing may both involve the stock market, but they are not the same thing. Left unchecked, trading can teeter on the edge of gambling while investing follows a long-term process.

Trading: Guessing short-term trends

Traders get a lot of attention. When someone gets lucky and makes a winning pick, they go on TV. When many others pick wrong, they seemingly disappear. Trading is all about timing. It’s buying and selling quickly to try to capture short-term price movements. Traders might hold a stock for a few days or even a few hours, but they almost never plan to hold a stock for 20 years. Why? Because holding a stock long-term isn’t trading - it’s Warren Buffet style investing. 

The problem with trading is that unless you have inside trading information, which is illegal, predicting short-term movements is extremely difficult. The stock market reacts to thousands of variables like economic news, company earnings reports, political events, interest rates, and even tweets. Trying to outguess all of that on a regular basis is like walking into a casino and betting on red or black. You might get lucky once or twice, but luck is not repeatable and will not build lasting wealth. 

That said, it’s not impossible, and some individuals manage to make a living using trading techniques. Day-trading is not easy. Taking up day-trading as a career or hobby requires immense amounts of time, effort, and discipline. Ironically, those trying to escape their day job through chasing stock tips often end up with a different full-time job with significantly more risk.

Investing: A long-term process

Investing, on the other hand, is not about guessing the next hot stock. It also doesn’t involve trying to make decisions on when to jump in and out of the market. It’s about building wealth steadily, little by little, over time. Instead of trying to get lucky on a get-rich-quick trade, investing is about putting money into high-quality investments on a regular, pre-determined schedule.

Living in a valley surrounded by orchards, you can think of investing like planting a tree. You don’t expect fruit the day after you plant the seed. You water it and wait for it to grow. Over time, the tree produces fruit year after year. Investing works the same way: it’s a long-term process of putting money into carefully chosen investments and letting compounding work its magic.

Investors don’t panic over short-term market dips. They understand that markets go up and down in the short run, but the long-term trend has always been upward. As the market continues to soar to all-time highs, you need to remember that the stock market has faced every political change, natural disaster, international conflict, and economic downturn and recovered only to continue advancing. Historically, the U.S. stock market has averaged about 10% annual returns over the long haul, even after factoring in recessions and crashes. That growth doesn’t happen by chasing the latest trend. That growth happens by staying invested and letting time do the work.

The takeaway

For people running businesses, raising families, and planning for retirement, trading isn’t a strategy, it’s a distraction. A few lucky bets won’t secure your financial future, but a disciplined investment plan will. Whether it’s regularly contributing to your 401(k) and taking advantage of your employer match, investing through your personal IRA, or working with an advisor to build a tax-smart portfolio, the principles are the same: consistency, patience, and long-term focus win every time.

It’s tempting to think that the path to wealth is about finding the next winning stock pick. But the truth is, trading is often like gambling. The old adage rings true, “If it sounds too good to be true, it probably is.” So, the next time you hear about someone bragging about their short-term investment gains, remember the orchards that you drive by every day. A harvest doesn’t happen overnight. It’s about planting, nurturing, and enjoying the fruit for years to come. That’s what real investing is all about.

This material is for informational purposes only and does not constitute financial, investment, or tax advice. Please consult your tax advisor or financial planner to discuss your specific circumstances before making any decisions.

Tyler Kert, a licensed financial advisor and CPA, provides financial planning and tax consulting services at Tamarack Wealth Management in Cashmere, WA.