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  • Writer's pictureDamon C Collins, MBA, AAMS®, CFEI®

Long-Term Investing vs Day Trading

We all love to see people race against each other in track meets. For example, watching Usain Bolt run 9.58 seconds in the 100 meters, a world record, is very exciting. For some, the two-mile run is exciting. Jakob Ingebrigtsen holds the record of 7:54.10 minutes. Both runners train day and night to be able to run and complete the race at world record times. Usain trained for a 10-second race, while Jakob trained for an 8-minute race. No matter the different training, they had to run their race. The outcome was the same, which was to come in first place.

The same can be said about investing. No two investment portfolios, strategies, or goals are the same. However, we all want the greatest results from investing. Long-term investing and day trading are fundamentally different approaches to the stock market, each with advantages and disadvantages. In this blog, I speak about the pros and cons of each.

Long-term Investing:

Time Horizon: Long-term investing typically involves holding onto investments for years, if not decades. Usually, investments with a strong history of growth, low debt, good dividend returns, or a very solid, profitable company will be the type of investments held for the long term.

Strategy: Investors focus on buying and holding fundamentally strong assets, such as stocks, bonds, ETFs, or mutual funds, with the expectation that they will appreciate over time. For example, on December 19, 2014, Apple stock traded at $27.95 per share. On May 14, 2024, the stock is trading at $186.88 per share. The stock has appreciated over time.

Risk Management: Long-term investors generally have a higher tolerance for market fluctuations because they believe in the underlying value of their investments and are less concerned with short-term volatility. Usually, individuals hire a registered investment advisor to control risk and manage their portfolio.

Tax Implications: Long-term investors benefit from lower capital gains tax rates on investments held for more than a year. Long-term capital gain rates are no higher than 15%.

Less Time-Intensive: Long-term investing requires less active monitoring than day trading, making it suitable for those with less time or interest in actively managing their investments. Usually, long-term investing will have their portfolio rebalanced a minimum once a year, based on market swings.

Compound Growth: Long-term investors can use compounding returns, where their investment gains are reinvested to generate additional returns over time. Compounding returns are the foundation for building your savings and are a guideline for building wealth over time.

Day Trading:

Time Horizon: Day trading involves buying and selling financial instruments within the same day, sometimes within minutes or seconds. The overall outlook is to get in and out and get as much as you can before the investment instrument decreases in price.

Strategy: Day traders aim to profit from short-term price fluctuations, often leveraging technical analysis, chart patterns, and market trends. They must study trends like the back of their hands and make decisions as quickly as possible based on that knowledge.

Risk Management: Day trading can be highly risky due to the volatile nature of short-term price movements. Traders must have strict risk management strategies to protect against significant losses. Registered Investment Advisors usually dont operate and do day trading due to the high risk it can bring.

Tax Implications: Day traders are subject to short-term capital gains taxes, which are typically higher than long-term rates. Short-term capital gains tax rates are generally the same as ordinary income, anywhere from 10% to 37%. Frequent trading can also result in higher transaction costs.

Time-Intensive: Day trading requires constant monitoring of market conditions and price movements throughout the trading day, making it a full-time commitment. Day trading does not work for those not committed to the computer screen and chart reading.

Potential for High Returns: While inherently risky, successful day traders can generate significant profits in a short amount of time through skilled trade execution.

The Takeaway

The choice between long-term investing and day trading depends on individual preferences, risk tolerance, time commitment, and investment goals. Long-term investing is generally considered more suitable for most investors looking to build wealth steadily over time, while day trading is more suited for experienced traders willing to accept higher levels of risk for the potential of quick profits. Investors should carefully assess their financial situation and objectives before deciding which approach to pursue.


The information herein is intended for educational purposes only and is not exhaustive. Diversification or any strategy that may be discussed does not guarantee against investment losses but is intended to help manage risk and return. If applicable, historical discussions or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax, or financial advice. Please consult a legal, tax, or financial professional for information specific to your situation.

FINRA has not reviewed this content.

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