March 4, 2010

So the next chapter in my occasional series about What type of Trader are you? focuses on whether you are trading for Growth or Income.

Most  standard Investment strategies offer you the route of either looking for Capital Growth on your investment or a stream of Income.  It doesnt matter whether youre investing in Mutual Funds, Properties or Businesses etc.

You can either look to have a monthly or annual income from your investment, say directly investing in or starting a business that pays you a dividend or bonus for your investment. Or perhaps owning a rental property that pays you an income.

Or you can forsake that income in the hope of extensive Capital Growth of your investment. So for example owning a piece of artwork, some fine wine, investing in a high growth tech stock (or flipping a property if youre an MP looking for some quick hard cash).

When it comes to your trading account remember that it should be viewed as an investment, youve probably had to work hard to create the seed capital for your business (treating trading as a business will be a future topic).  Be honest with yourself, when you look at the account is it for Growth or Income?

I suspect that whilst most individuals goals centre around Income I want to earn £10,000 per calendar month from trading etc the reality is that theyre actually trading for Growth.

Most folks (certainly in the Retail Private sector) are under-capitalised and would need to grow their account to a level whereby they could take significant profit for themselves. Theres nothing wrong with this, I just ask you to be honest and review your overall Business Strategy to ensure alignment of goals and objectives.

Alternatively if you are trading for income then dont forget to pay yourself on a regular basis!  I have a belief that there is a psychological element to paying yourself from Trading. It is good for you and sends the right message to your brain that youre making progress.  Its not necessarily the monetary amount, its just the process of treating it as a business and sending yourself the right messages.

Now there maybe some of you reading this and thinking Well I dont make enough profits to take money as an income.  Congratulations! Youve answered the question.  You are trading for growth.  Are your Business plan, goals and strategies aligned with that?

I hope this helps and as always -Trade Well!