Are You A Trader, Investor, Or Saver? (Hint: You're Probably A Saver)

There are a lot of people who fancy themselves traders in the cryptocurrency market, but holding coins for less than 365 days (such that you register trading-income tax rather than capital-gains tax) does not a trader make. There is another large group of people who fancy themselves investors, but truly they are (or should be acting like) savers.

First, we must define some terms. The three nouns in the title of this post are more different than they may at first appear to be. What is the difference between a trader, an investor, and a saver?

Trader - One who trades actively in the markets, often day to day. Think of a 1990's stock day-trader. These market surfers are subject (in the UIS, at least) to normal income tax on all of their gains, potentially up to 25%-35%. This makes it very tough to be a profitable trader - you either need a huge amount of capital, such that you can make a living on a percentage point or two after tax, or a huge amount of luck (latter not recommended.) As a result, being a trader is very risky, and a great many are losers in the long run (much like poker players.) You need a huge edge to succeed as a trader, or access to other people's money (tm).

Investor - An investor thinks they have an edge over the broader market, but not enough to trade day to day and incur the higher tax rates and more frequent exchange fees. They are more inclined to buying things they can hold for a year or three, perhaps even longer if things go well. They want the extra padding of the reduced capital gains taxes in case their plays don't turn out quite as shrewd.

Saver - Unfortunately, savers are often bamboozled into "active management" by Wall Street, which is code for "WS gets the guaranteed gains, savers take the risk." It's easy to see why, since they have rightly identified themselves as not having a "stock (or coin)-picking" edge.

Here's a high-tech pie chart I cooked up to illustrate the rough distribution of traders, investors, and savers in the general population (as estimated by yours truly):

I'd scoff at this if someone submitted it to me as a finished Fiverr project.

So, what's the point of making these distinctions? To be blunt, acceptable practice for traders will differ from that of investors and savers. However, people who push you investing advice and trades won't even consider that this distinction exists, much less ask you to take care in allowing for it.

The truth is that all of mainstream finance pushes far more risk onto the average person than they should really have. Most people are savers (if they are lucky) - they don't have an edge, they just need to transport capital through "time". Yet, they are constantly sold investments that do not even come close to meeting their needs. See my series of posts on perennial money-losing stocks that continue to be bid up with pension money (Tesla, Netflix, Hulu.)

Nobody is going to watch out for your money except you. Make sure you do an accurate appraisal of your own situation and skills before you do so...and don't forget we are more prone to overestimation of our knowledge than underestimation.

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