Mutual Funds Investment Compared to Day Trading – Investing

If you watch or read the news, you will often hear about someone who was catapulted from a 9-to-5 job to instant millionaire status by day trading. It makes you wonder if putting your money in long term investments is really the best way to go, and if you should instead be sitting at home and day trading to make your fortune.

What you don’t hear about in the news though are the numerous people who lose their money at day trading. Day trading is just like any other form of gambling. There will be a few big winners, and lots of losers. The only group that is guaranteed to win is the house, which in this case are the stock brokers. Stock brokers charge fees on every transaction, so regardless of which way the stock goes, they already have their pay.

Betting on the wild fluctuations of a single stock on a single day is just as likely to leave you broke as it is to leave you a millionaire. You might as well just head to a casino since your odds of winning are about the same between gambling in a casino and gambling in day trading. However, there is a fairly sure way of making money, and that is long term investments.

With long term investing, you will not be making millions in minutes, but your money will also not be at risk of vanishing in minutes either. Long term investing is stable and the odds of an entire company going bankrupt and destroying your investments is very low. For even better odds you can invest in the whole economy.

This leaves the question though of just how to bet on the whole of the US economy. It does not have a stock you can buy, or bonds you can invest in. This question is exactly why mutual funds were created. By taking just a few stocks from a large numbers of companies you can make a bet on either the economy as a whole or a section of the economy, such as banks or communication companies. With many companies invested in, even if a company goes under, it won’t do much to the mutual fund.

The other easy option is to buy US treasury bonds. Despite the current debate over the US debt, I simply can not imagine a future in which the US defaults on its debts. The only things that could force the US to default would be nuclear war or major meteor strikes, and in either case my biggest concern would not be the value of my treasury bonds. Treasury bonds are a guaranteed investment in the strongest government in the world.

Compare both mutual funds and treasury bonds to the random chance of day trading and it quickly becomes obvious that despite day trading’s ability to win you instant millions, the best option for making money in the long term is careful investments. They provide a stable and constant income without much risk. Investments will, in the long run, make you more money. All you need is a bit of patience.