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This is a knee jerk post. I just heard an ad for Schwab where they said they will sharpen your trading skills to learn how to trade brilliantly.
What immediately popped into my mind was I am not, nor do I want to be, a brilliant trader. I want to be a brilliant investor (hardly the case but I’m trying).
What about you? Do you aspire to be a brilliant trader or a brilliant investor? For I think they are totally different creatures.
Hmmm. I don’t know what brilliant is, in this context. I invest to beat inflation, although I do attempt to do better than the indexes. A significant portion of my holdings go back about 20 years, but I do own a few newer stocks. I don’t own an index fund per so. Back in 1990 or so I did buy and sell more frequently. My numbers indicated the brokers were the ones making money. After the Dot-Com bust I became more cautious and shifted to buy and hold. I didn’t even bother to buy during the recent dips, nor did I make any significant changes after the most recent presidential election. I did make several stock purchases in 2024, aside from automatic reinvestment of dividends.
I am primarily an investor, but I have done a few trades.
If you do a trade, you have to be disciplined and exit the position whether you win or lose. If you let a trade turn into an investment, you will lose for sure.
My trades were utility-merger arbitrage.
I was fortunate to work at a mutual fund company (hint: this mutual fund company has an ETF started with a letter Q). Hence, I learnt the tricks of the trade while providing IT support for the trading team. Knowing my capability, I’d rather be a brilliant investor than a trader.
I am a little bothered by the tone of this discussion. I have done business with Schwab as an investor for 35 years. For all that time i have been buying and holding, and never trading. And, for all that time, Schwab has also been supporting customers who wanted to trade. There has never been a time when I received less than stellar service despite the fact that I never trade.
And, while I believe that buy and holding index ETFs is a better strategy than trading individual stocks, index funds and ETFs need traders and investment managers trying to beat the market in order to create the market price and overall results which they seek to emulate.
All the major brokerages support those who wish to day trade or do something other than buy and hold. Given that we have a free market economy this is exactly how things should operate.
I’m sorry if my comment came across the wrong way. Schwab is a fine company offering excellent service. Its platform for certified financial planners is said to be very good.
Never? How do you rebalance?
Schwab is competing with robinhood and they got to attract the traders to make money.
A fictitious conversation
YOU ARE A TRADER…
William: We need traders—but that doesn’t mean trading is for me.
David: Wait, why?
Wiliam: Because traders play a very specific role. They’re the ones who help with price discovery—figuring out what every stock is really worth from one minute to the next. Without them, the market would move like dial-up internet.
David: Yeah, but I’m an investor, not a trader. I just own an S&P 500 index fund and let it ride.
William: That’s the funny part—you think you’re not a trader, but you actually are. Every stock in that index is constantly being bought and sold inside the fund to keep it matched to the S&P 500. When Apple’s market cap rises, your fund automatically owns a little more of it. When another company drops, shares are sold to rebalance.
David: So even though I never place a trade, the fund’s doing it for me?
William: Exactly. You’re trading all the time—you just don’t see it happening. The algorithm handles all the trades while you sip your coffee thinking you’re a long-term investor.
David: So I’m a silent trader whether I like it or not?
William: Pretty much. But hey, that’s the best kind of trading—the kind you don’t have to stress about.
I don’t think that’s the way it works. Don’t they only rebalance when stocks go in and out of the index?
Randy
To double check my response my research indicates:
Yes, major adjustments to match the S&P 500 Index happen quarterly during rebalancing.
Daily, the ETF’s NAV (Net Asset Value) adjusts automatically as the underlying stock prices fluctuate, with minor tweaks via the creation/redemption process to stay aligned.
So the index fund is sort of rebalancing, on a daily basis.
😂
“brilliant trader or a brilliant investor?” Some may aspire to be both, or neither.
In the beginning, there was no aspiration, only a deep breath before plunging into the market with the goal: not to lose money. I have been both a trader and an investor, though only by hindsight. Good investor needs some market awareness to anchor financial goals. Market awareness, in turn, comes from understanding market signals, liquidity, price discovery offered by traders / speculators. Deep knowledge requires active participation: to know the water means to get wet.
I know people who were traders during the dotcom era. They became reluctant investors in the early 2000s, then left the equity market completely after the Great Financial Crisis. Some experts say “You’re not an investor until you’ve held through a bear market without flinching.” I may think I aspire to be an investor, but I have my cognitive biases too: loss aversion, FOMO, overconfidence, recency memory, the whole nine yard.
Never a brilliant investor or trader, but pretty good at squirreling away as much as possible, including virtually all my income above base salary which I never considered “pay.” One of those separate money buckets of mine.
When I ask the Fidelity site to do analysis of my investments it comes back as they meet the standard benchmark for stocks and bonds, but I have no idea how I got there.
If I thought for even a moment I could call ‘em like Warren Buffett, I’d be a trading fool! Sadly, I’d just end up a fool.
Just treat yourself to a Dairy Queen.
I remember when Berkshire Hathaway just made men’s shirts.
s’mores blizzard, yummy!
Thanks for the suggestion.
I aspire to get market returns – index funds all the way! So I suppose that makes me an average investor.
But the reality is that someone who sticks in an index fund through all the ups and downs, and doesn’t try to time the market or chase the next big shiny opportunity, probably end up much better than average.
Your second paragraph is my definition of an investor. I self define a trader as one who is constantly trading to try and beat the market, which to me is a fool’s errand, especially as the vast majority of active fund managers can’t do it.
As an example per AI in 2024 only about 35% of large-cap active funds outperformed the S&P 500.
We do pretty much the same thing.
Index funds.
Every July – end of 2nd quarter – we take funds out of an index fund and add them to a CD that just expired and buy another CD for some multiple year period.
We’re in our early 70’s.
We feel we just don’t know enough about “trading” – nor wish to take the time and effort to learn about it – to do any of it.
We are happy with our modest returns.
I am with you Winston. Our portfolio (which I manage myself) with a heavy dose of bonds/cash (presently 55%) has returned an average of 8.5% over the past ten years. I am more than satisfied with the results considering the minimal effort I put forth utilizing only index funds.
BTW Per AI: The average annual return of the US stock market over the past 10 years has been approximately 12.2% to 14.8%.
I don’t aspire to be either. I suppose I count as a reluctant average investor. If my pension had had a proper COLA I wouldn’t have needed to be either. As it is, I aim to keep things as simple as possible, and am eternally grateful for Bogle and Vanguard.
Personally, I aspire to be an average investor earning average returns… oh wait, I’m an index investor, I already am average!
Companies like Schwab and Fidelity seem to do that (focus on trading). Our investments are at Vanguard. Their whole retail user experience is oriented around long-term investing. Fund policies discourage trading, which drives up fund costs for all.
With a lot of my compensation in employer stock over the past ~20 years, I’ve learned to trade well enough. But for our retirement investments, there is only downside to trading. I keep all those holdings in Vanguard’s Admiral class mutual funds, not the ETF wrapper (yes, the ETF may be more tax efficient).
Most of my compensation in the last five years of work was employer stock or stock options. I kept it all and also reinvested dividends- I just stopped that this month. I still have the shares which as Jonathan once pointed out to me made me too concentrated. He was right of course, but I’m still keeping them and they kick off about $26,000 in annual dividends.
Couldn’t live with that much concentrated risk even working for a great, well-managed company. I sold each vest and ploughed cash in our core retirement portfolio. It yields enough to live comfortably.
Taxes only matter in your brokerage account, not your IRAs. Now RMDs have increased the size of my brokerage account I suppose I might start thinking about ETFs. I believe I can simply move my mutual fund money to the equivalent ETFs at Vanguard without tax consequences.
Just to be precise, you can have an annual tax bill on a security held in an IRA (which I found out the hard way). Specifically, UBTI on an Master Limited Partnership (which is a pass through entity) will create a tax bill if the total UBTI exceeds $1,000 in a single year. I know Vanguard will automatically detect it and pay it to the IRS from the IRA as they’ve done it for me. If I recall correctly, the fee to do so was about $300. So no, taxes can matter in an IRA. Yet another example of the complexity of the tax code.
I don’t hold such exotica – I had to look UBTI up. Just those boring, average mutual funds, indexed for stock.
Yes indeed. But since ~60% of our retirement savings lives in our taxable account, it’s a consideration.
That last sentence didn’t sound right to me, so I did a quick search. Vanguard surely does make that an option with some of it’s funds: Share Class Conversion (Specific Providers): Some fund providers (notably Vanguard) offer a unique structure where an ETF is simply a different share class of the existing mutual fund. In this case, converting your mutual fund shares (specifically Admiral Shares) to the equivalent ETF shares within that same fund family is generally a tax-free transaction.
There are some exceptions, so be cautious.
Yep, that’s right, Dan. Pretty clever these Vanguard folks.