How to Build Wealth Through the Stock Market? Investing vs. Trading
Before you learn about the stock market, it is essential to understand why it should interest you, how you plan to generate income from it, and what kind of activities you should do in the market. There are a lot of different perspectives out there when it comes to the world of the stock market. Some people think it’s a great way to make money, while others think it’s a huge gamble. The core objective of this article is to change mindsets and set a strong perspective.
Why Should You Be Interested in the Stock Market?
To understand why you should become interested in the stock market, we must first understand what everyone is striving for in today's socio-economic environment. What is the absolute goal of an average person? It’s financial freedom!
What is Financial Freedom?
Financial freedom is a desirable condition of having enough money in your bank account to cover your expenses without having to work, run a business, or rely on others. Many people aspire to achieve it before they retire. Financial freedom allows you to pursue your passions without worrying about expenses, even if your passions do not generate income.
Normally, people save a part of their income and deposit it in their savings account, fixed deposit, or recurring deposit. They invest to generate wealth, which can then be used to take care of any long-term financial goals or expenses after retirement. However, it is impossible to achieve financial freedom by such methods as the annual returns generated by these financial instruments are only 5-7%. They cannot help you generate enough income to beat inflation.
Inflation in India stands at ~6%, and if you keep your money in a savings account or deposit it into FDs or RDs, you’re barely beating inflation. You won’t even make enough money to keep aside as savings after accounting for all expenses. So what can you do?
The stock market can be one of the most convenient and easy ways to achieve financial freedom as it offers more returns on your investments.
How to Use the Stock Market to Achieve Financial Freedom?
There are mainly two types of activities in the stock market that a retail participant can take part in:
Trading is the buying and selling of stocks for short periods (intraday or for less than a year) or futures and options to generate income in a short period. There are different types of trading such as intraday trading, swing trading, and positional trading, which we will discuss in later sessions. People trade to generate cash flow instead of generating wealth through long-term investing.
Long-term investing involves buying and holding stocks, bonds, commodities, mutual funds, and exchange-traded funds (ETFs) for extended periods to grow your wealth.
How do Trading and Investing Solve the Problems of an Average Person?
If you recall, the key issue most people face is the inability to beat inflation. So an average person can beat inflation by investing in the stock market for the long term instead of depositing their savings in a fixed deposit, recurring deposit, or even their bank savings account. Long-term investing can help you amass great wealth by generating higher returns. We should view it as a fundamental duty of every citizen.
The second pressing issue for many people is insufficient income to start investing. With rising expenses, they may not have enough salary or wages to set aside to make investments. To fix this issue, a person can upskill for a higher-paying job, start a business, or trade in the stock markets. You can trade both actively and passively.
Should Everyone Trade?
The only motive for trading is to make money or an extra income. Trading is a choice. If you have the potential to make enough income by increasing your skills in your current job or business, then trading is not necessary.
The stock market is a great way to make money. However, it can also be risky. So it's important to learn the fundamentals of the stock market before you invest or trade. We hope that you have gained clarity on why you should be interested in the stock market and whether you should engage in trading, investing, or both.