Who Makes More Money: Traders or Investors? The Ultimate Showdown

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Have you ever wondered who’s winning the financial game – the quick-fingered traders or the patient investors? I’ve spent years observing both worlds, and the answer might surprise you. Let’s dive into this fascinating money battle that has important implications for your own financial future.

The Fundamental Difference: Speed vs. Patience

The difference between traders and investors boils down to two critical factors

Time horizon – How long you hold your positions
Mindset – Whether you think like an owner or just want quick profits

As someone who’s dabbled in both approaches, I can tell you that these differences create entirely separate financial ecosystems with very different outcomes.

Trading: The Fast-Paced Money Game

Traders are all about capturing short-term price movements. They’re the folks who:

Watch stock charts by the minute
Make decisions based on price momentum rather than business fundamentals
Hold positions for days, hours, or even minutes
Care more about what other traders think than about the actual business

I’ve met many traders who get a real adrenaline rush from this approach. They love the thrill of trying to outsmart other market participants in real-time.

Types of Traders

The trading world has several distinct approaches:

Day traders – Buy and sell positions within the same day, never holding overnight
Position traders – Use longer-term charts to identify and ride established trends
Swing traders – Try to profit from anticipated changes in market direction
Scalpers – Make numerous tiny profits from momentary imbalances in supply and demand

A friend of mine is a dedicated day trader who constantly tells me about his “big wins” – but curiously. he never seems to mention his losses!

Investing: The Slow-Burn Wealth Builder

Investors take a fundamentally different approach

Think like business owners, not just stock buyers
Focus on how businesses perform over time
Don’t worry about day-to-day price fluctuations
See market declines as potential buying opportunities
Hold positions for years or even decades

Warren Buffett, arguably the world’s greatest investor, summarizes this philosophy perfectly. He recommends regular purchases of index funds held for decades – letting businesses generate gains for you over time.

The Money Question: Who Actually Makes More?

Now for the million-dollar question (literally): who ends up with more money?

The evidence overwhelmingly suggests that investing beats trading for most people. Here’s why:

1. The Zero-Sum Game Problem

Trading is fundamentally a zero-sum game – for every winner, there must be a loser. When my cousin made $1,000 on an options trade, that money came directly from another trader who lost $1,000.

Investing, however, is a positive-sum game. When businesses succeed and grow over time, multiple investors can win simultaneously as the overall economic pie expands.

2. The Missing Days Penalty

Traders frequently miss the market’s biggest up days because they’re temporarily out of the market.

According to Bank of America research:

The S&P 500’s total return from 1930-2020 was a staggering 17,715%
If you missed just the 10 best market days per decade? Your return would be only 28% total

This shocking statistic reveals why the saying “Time in the market beats timing the market” is so powerful.

3. The Tax Efficiency Advantage

Every time a trader sells for a profit, they create a taxable event. This significantly reduces their ability to compound gains over time.

Let’s look at a simple example:

Starting with $10,000 and achieving 20% annual gains for 5 years:

Trader (selling annually, paying 20% tax each time): Ends with $21,000 (~16% annual return after taxes)
Investor (holding the entire period): Ends with $24,883, or $21,906 after taxes when finally selling (~17% annual return)

The investor’s tax-deferred compounding creates a significant advantage over time.

4. The Professional Performance Gap

If trading were consistently more profitable than investing, we’d expect professional fund managers (who actively trade) to outperform market indexes. But research tells a different story:

According to S&P Dow Jones Indices, 93% of fund managers investing in large companies failed to beat their benchmark index over a 20-year period. That number rises to 92% over a 15-year period.

Think about that: these are professionals with advanced degrees, powerful computers, and sophisticated trading algorithms – yet they still can’t consistently beat simple buy-and-hold index investing.

Why Most Traders Lose Money

The hard truth is that most traders actually lose money. Here are the key reasons:

Transaction costs add up – Every trade incurs fees and spreads that eat into profits
Emotional decision-making – Fear and greed drive poor timing decisions
Information disadvantage – Individual traders compete against institutional algorithms
Overconfidence bias – Many traders overestimate their ability to predict market movements

My neighbor started day trading last year and was initially very excited about his “system.” Six months later, he quietly went back to his regular job and doesn’t mention trading anymore.

The Rare Successful Trader

Can some people consistently make money as traders? Absolutely! But successful traders typically share these characteristics:

Rigorous discipline and emotional control
Extensive market knowledge and experience
Well-tested systems with clear rules
Proper risk management techniques
Sufficient capital to withstand drawdowns

The problem is that these traits are relatively rare. For most people, investing is simply a more reliable path to wealth.

What This Means for You: Which Approach Should You Choose?

If you’re trying to decide between trading and investing, consider these factors:

Choose Trading If:

You have extensive market knowledge
You enjoy intense market analysis
You can control emotions during market volatility
You have time to monitor positions regularly
You understand the statistical challenges

Choose Investing If:

You want a proven approach with higher success probability
You prefer less time-intensive strategies
You value tax efficiency
You don’t want to compete against algorithmic traders
You can be patient with market fluctuations

My Personal Recommendation

After years of watching both approaches, I’ve come to a clear conclusion: for 95% of people, investing is the smarter path to wealth. That doesn’t mean you can’t allocate a small portion of your portfolio (maybe 5-10%) to trading if you enjoy it, but your core wealth-building strategy should focus on long-term investing.

As Buffett wisely suggests, regularly buying into an index fund like an S&P 500 fund and holding for decades is likely to outperform most active trading strategies.

The Bottom Line

So who makes more money – traders or investors? While exceptional traders can achieve extraordinary returns, the data clearly shows that for the vast majority of people, a patient investing approach will generate significantly more wealth over time.

The real question isn’t whether you can make money trading (some people certainly do), but whether trading is the most efficient way for YOU to build wealth. For most people, the answer is no.

Remember: wealth isn’t built overnight. The most reliable path to financial success isn’t through clever market timing but through consistent investing in quality assets held for the long term.

Have you tried both approaches? I’d love to hear about your experiences in the comments!

who makes more money traders or investors

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who makes more money traders or investors

• Investing
• Wealth management

Former Bankrate principal writer and editor James F. Royal, Ph.D., covers investing and wealth management. His work has been cited by CNBC, the Washington Post, The New York Times and more.

who makes more money traders or investors

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Brian Beers is a former managing editor for Bankrate. He oversaw editorial coverage of banking, investing, the economy and all things money.

Investing vs. trading: How they differ

Here’s a phrase that sums up a key difference between investing and trading: “With trading, you make money by acting; with investing, you make money by waiting.” Let’s break down the other key differences to see how they compare against each other.

If you’re investing, you’re taking a long-term mindset about your investments which shows in how you approach the process of analyzing, buying and selling stocks. For example:

You think like an owner — that is, about how the business will perform rather than just what the stock will do.
Your long-term return relies fundamentally on the performance of the business, as opposed to your ability to buy and sell better than other traders.
You think about the business as an actual business — its products, how it competes and the evolving industry rivalries — and not just as a stock.
You don’t worry about day-to-day fluctuations in the stock price, especially if the company’s long-term trajectory is on track.
Because you’re thinking further out, you shake off short-term negative market reactions, such as when the company announces disappointing quarterly earnings results.
You’re able to sit patiently with your investments as they grow.
You see a decline in the stock or a fund as a potential chance to own more shares in good businesses at a discounted price.
If you’re investing in funds, you’ll tend to take a more passive approach, adding money regularly to your portfolio rather than trying to time the market.
You sell investments based on process and discipline — when the investing case has played out — rather than because they did well this week or month.

Being an investor is about your mindset and process — long-term and business-focused — rather than about how much money you have or what a stock did today. You find a good investment, and then you let the company’s success drive your returns over time.

If you’re trading, you’re focused much more on the short term, and you’re less interested in the business as an actual business. Traders are likely do some or all of the following things, such as:

You’re less interested in whether the underlying business will thrive but more interested in whether the stock can make you money.
You want to know what other people think about a trade because you’re not just playing the stock or fund but also the other players at the table.
You may look at short-term price movements, even watching the charts by the minute to predict the best time to buy or sell, and you’re “timing the market.”
Stock prices drive your behavior rather than the fundamentals of a business.
You’re apt to ride the momentum stocks and look for stocks that are rising today rather than ones that are priced with a margin of safety.
Your holding period tends to be short (perhaps just a day if you’re a day trader, or maybe a few weeks or months) depending on your specific strategy.
You may sell investments based on process and discipline, but those trading rules have a lot more to do with how much you’ve made or lost than they do with the business itself.
You may need to pay attention to the market more than you would as an investor since you need to make frequent buy and sell decisions.

Traders tend to have a short-term orientation. Being a trader relies less on analyzing a business than it does on looking at its stock as a way to turn a buck — and ideally, the quicker, the better. Success here relies on outguessing the next trader, not necessarily on finding a great business.

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FAQ

Is it better to be a trader or investor?

To accrue a long-term profit advantage, one has to have a large sum of money to invest. Hence, if you have good expertise in financial markets, trading is better for making profits. On the other hand, if you have sufficient money in hand and want long-term returns, investment is a better and ideal option.

Which is more profitable, trading or investing?

It depends on your goals. Trading is like a quick game for short-term gains, while investing is a patient strategy for long-term growth. If you want fast profits and can handle quick decisions, trading might be for you. If you prefer a slow but steady approach, investing could be better.

Do traders make more than investors?

There is no set benchmark for traders’ returns, but a skilled trader can earn a significantly higher percentage return than an investor. Historically, investing in an ETF tracking the S&P 500 has resulted in an average return of 10.5% per year over the last 100 years. Returns vary by asset.

How much is $1000 a month invested for 30 years?

Investing $1,000 a month for 30 years could grow to over $1.4 million with an 8.27% annual return, or around $800,000 with a 5% return. Your total contribution over 30 years would be $360,000 ($1,000 x 12 months x 30 years), and the remaining value would be from compound earnings.

The Fundamental Difference: Speed vs. Patience