Yesterday I had people guess why I actually lost to the market during the day trading challenge, and I don’t think anyone got it right. So maybe reason #5 will surprise you!
Some notes on reason #5 that I learned during this challenge:
• Most brokerages WILL actually let you use the money from a trade right away. For example if you sell stock A for $10,000 then buy stock B the same day, that’s ok. But if you then SELL stock B before the cash from stock A settles, you have committed a “good faith violation”. I actually got hit with one of those during the day trading challenge! Oops!
• You can potentially avoid this need for cash on hand by trading in a margin account. That’s basically using borrowed money to make the trades so it doesn’t matter if it’s your cash or not. But Roth IRAs can’t be margin accounts, so you’d be back to getting hit with short term taxes. Plus margin accounts introduce fees, risk etc.
I bought my first mutual fund at 17 and started trading stocks in college. I’m now 41. The more I do it and the more I learn, the more I believe that the path to optimize my wealth is to keep things as simple as possible. Buy and hold index funds. Never sell anything until you retire. Prioritize tax-advantaged accounts. Just leave everything alone other than putting in more money. That’s not the beginner strategy or time saving strategy. It’s the optimal strategy that will make you the most wealthy.
As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.