Is Trading a Good and Viable Side Hustle?

Many people chose to trade stocks or cryptocurrencies as a source of secondary income. This might be a viable source of income for some but there is a lot of inherent risk involved with this strategy. There is always an inherent risk to both trading and investing so it’s of vital important that you take all precautions whenever possible and start off slowly if you’re just starting out.

Trading vs. Investing

There’s a big difference between trading for short term profits and investing for long term wealth. In terms of probability of success, you are much more likely to achieve some form of success with a buy and hold investment strategy as opposed to a short-term trading strategy. The odds are always in your favor. We are experiencing economic expansions and in a bull market approximately 90% of the time, while 10% of the time we are in periods of economic contraction and a bear market. Although contract and expansion don’t always correlate perfectly with bull and bear markets in equities, they really tend to help skew the odds towards bulls winning a majority of the time. Therefore, you are much more likely to win investing as opposed to trading.

Overinvesting and Overtrading

Most traders get themselves into trouble because they trade too much and don’t know how to sit still during the times where their most effective strategy might not viable. The same could be said about consumers that invest into too many different things, but this tends to lead to a diversified strategy and as long as you are investing in reputable companies, the odds will tend to be in your favor overtime.

Risk vs. Reward

There’s a lot to be said about risk vs. reward. You should always want to take a favorable risk reward whenever you are investing or risking your money to try and make profit. If you risk $1 to make a penny, it might not be worth your time and energy and you might want to consider a different investment or put your money somewhere else. This is one of the most important concepts you should grasp if you want to generate income from investing or trading. If you want to be successful you should always understand the amount your risking for the amount of desired profits. If you’re risking $1 to get $2, that could involve a risky trading strategy or be a harder goal to achieve in the short term but could be one that’s achieved in the longer term via investing. For example, let’s say you want to buy Tesla stock. If you want to buy Tesla to trade, you may only be looking to buy $1,000 worth of stock and be looking to sell after a 20% gain, which will net you $1,200. In order to double your money, you will have to perform that trade 5 times to turn your $1,000 into $2,000. Now if you’re investing you might be able to turn $1,000 by simply holding onto Tesla stock until you double your money, you might have to wait a much longer time (it’s also possible it never happens) but it’ll require less activity on your part and may be more likely to occur over time than having 5 successful trades without any losses.

Dividends/Staking Rewards/Yield

Dividends can generate income consistently however the problem with high dividend yielding stocks (typically) is that most stocks that offer high dividends tend to be low growth and are likely to be outperformed by their higher growth counterparts. Everyone has varying opinion on this matter but that is my personal take on the matter. Too high of a dividend yield isn’t always a good thing. This is at least the case with the current way things are going in the stock market. However, there are many stocks that offer dividends which can help generate some cashflow on the side. This isn’t likely to be enough to be considered a source of passive income however, unless you are receiving something double digit yields or have a great deal of assets.

The Safest Thing

The safest best is usually to buy and hold. This strategy has proven the most successful in generating wealth for its followers. However, what this strategy does not have the best probability of doing is generating short term profits that can be repeated on a continual basis. It’s quite difficult to find a consistent strategy in the short term that can consistently generate secondary income like that besides dividends. This is why it’s usually advised to buy and hold and take profits when you’ve made substantial gains or achieved your goal. Over the course of years these investments have been doing multiples and it’s usually the long-term holders that win out the most at the end of the day.

One option can increase your net worth in the long term and the other option can lead to short term profits but be also detrimental to both your mental health and your hard-earned savings. If you don’t take the right approach with either strategy you’re sure to experience some financial mishaps, however this could potentially be something that is simply a part of the learning process. Rome wasn’t built in a day and great investors weren’t made overnight. If you want to win, you are most likely to win with long term investing.