The Difference Between Investing and Trading

Investing and Trading are not the same thing. The returns you seek, the length of time it takes to achieve those returns, the amount of risk one is prepared to take, and the commitment one can make to monitor the investments dictate the strategy of whether to invest or trade.

Investing

Investing is holding an asset for a longer term, expecting it to increase in value. The most common example is investing in equity mutual funds through a retirement plan. Many of these funds are held for years and are expected to show a substantial
appreciation over the long term.

You can also invest in individual stocks and hold them for 6 to 18 months or longer, sometimes much longer. This is referred to as the “buy and hold” strategy.

Real estate would be another example of investing, unless the property is purchased for quick flipping.

Jewelry, art, stamps, and collectibles are still other examples of investing where they are kept for a long time in the hope their value appreciates.

Trading

Trading is also investing but the time frame for a return on that investment is a much shorter period, usually a matter of a few days or weeks.

The most obvious example would be day trading where a trader is in and out of a market the same day.

Still other trading takes place over a period from a few days to a few weeks.

Most trading takes place with individual stocks and commodities, with commodity markets being the most predominant vehicle.

Bonus Annuity – Help Against Recessions and Market Downturns

A bonus annuity can protect you in the event of a recession or a market downturn. But when is the next recession? Some clues can be found when major corporations CEO’s are brave enough to put their words on paper. I don’t always believe the talking heads on television but the CEO’s are the real deal. A corporation like FedEx is a great indication of how the economy is doing and how your investments will perform.

In the Feb 7th, 2011 issue of Fortune Magazine Fredrick W. Smith the CEO FedEx wrote an article called “A New American Energy Plan”. In the article he states a very relevant statistic to investments. Smith writes, “Every American recession over the past 35 years has been preceded by-or occurred concurrently with -an oil price spike.” This is serious business if you are up on your gas prices right now. If another market downturn is coming how can you protect yourself?

The article brings up another issue of energy reform. If recession is comes when gas prices are up what happens when energy reform happens and oil is no longer needed like it is now. We are talking world economic changes on a massive scale. Changes mean volatility, the stock market roller coaster. What to do?

A bonus annuity can help. A bonus annuity is an annuity that gives an upfront bonus to your investment money. It can pay around 10%, sometimes more and sometimes less. Simply, a bonus annuity is an annuity with money added up front. This is repetitive but sometimes the simple concepts are the most difficult to understand. How does it protect you from market volatility or the stock market roller coaster?

First, it does not go down in value. When the market is going crazy because of oil prices, there is no need to worry about your investments. And when the market goes up, so does your bonus annuity.

Second, it has a bonus added in. A bonus annuity can earn less and still make more. A $500,000 investment with a 10% bonus is worth $550,000. If you earn 10% for the year you make $55,000. If you only had $500,000 invested you would only make $50,000. With the bonus annuity you only have to earn 9.1% versus 10% in the regular annuity. It has less pressure to perform and more rewards when it does perform the same.

Third, over time it will earn more money due to the bonus compounding interest along with the investment. You are starting with 10% more money according to our example. Compounding is the eighth wonder of the world. It makes an enormous difference over time.

A bonus annuity protects your investment money when a recessions or market downturn hits. It is a great way to protect your nest egg and take the worry out of investing. You can then go vote for the energy reform and not worry about sabotaging your own earnings potential. Either way, energy reform or not, with a bonus annuity you are protected.

Keith Dennis works exclusively with small business owners to help them create tax-free income streams for retirement. Business owners are often stuck in the tax-deferred investment trap. They get a small break now and then end up paying much higher taxes later because they lose their business deductions. Then on top of that, their income is usually 100% taxable!

With tax-free investing you can literally have twice the income in retirement saving the same amount of money, retire sooner, or even save about half as much versus tax-deferred investments.

Real Estate Investment Value and Market Value: The Distinction

With any real estate investment, value can be derived in any number of ways depending upon the definition of the value being sought.

At the end of the day, though, a real estate investor buys rental property based on the specific value that is important to the investor, and that’s what really matters. Fair enough.

Nonetheless, in this article I want to give you a brief summary of investment value and market value in order for you to understand the distinction between the two types of values as well as what each means to an investor.

Investment Value

To a real estate investor, the investment value is the present worth of future benefits that provide a specified target rate of return at the level of risk that is acceptable to the investor.

This value implicitly involves the investor’s unique tax shelter requirements, availability of equity, capacity to borrow, management strategies, required rate of return, and so on.

In other words, investment value is whatever value the investor ultimately places on the rental property in order for him or her to make an investment decision.

For example, a ten-unit apartment complex with low-interest owner financing and favorable terms might be determined by the investor to have a value of $100,000 per unit, or $1,000,000. Whereas, the identical building located right next door with high-interest and non-favorable financing might not compel the investor to pay anything over $95,000 per unit, or $950,000.

The same idea applies to the investor’s other considerations. Perhaps a higher valuation when the rental property provides a lower risk or better tax shelter or less property management, and vice versa. It all boils down to what the investor is willing to pay.

Market Value

The market value estimate uses the same income approach to value utilized by appraisers and involves a market orientation in which the market is researched to provide typical or average values.

In this case, the value is derived using a capitalization process (i.e., capitalization rate) that converts an income stream into some present value using market-derived data.

In other words, market value is an estimate of what a rental property may be worth based upon the typical average values of similar type rental properties that recently sold in the local market. It has no regard for a real estate investor’s particular investment value.

For example, let’s say that the ten-unit apartment complex we illustrated above generates a verified net operating income of $100,000 and our research shows a market-derived cap rate of 5.0% for similar properties. The market value for the complex would be $2,000,000 ($100,000 /.05 = 2,000,000). So it’s not affected by the fact that the investor is willing to pay $1,000,000.

Rule of Thumb

Clearly, investment value can be vastly different than market value. Therefore, the most prudent thing for real estate investors is to define which type of property valuation is most important and then apply that value to any real estate investment property being sought.

About the Author

James Kobzeff is the developer of ProAPOD. A leading provider of real estate investing software solutions since 2000. The ideal way for novice investors to create a cash flow, rates of return, and profitability analysis for any-size investment real estate property in minutes! Easy and affordable.