By LouAnn Schulfer,  AWMA ®. AIF ®  Accredited Wealth Management Advisor ®  Accredited Investment Fiduciary ®

It may sound like semantics but empirically, a trader is very different from an investor.

Either is perfectly fine as long as you don’t confuse the two, and know which you are.  Using the stock market as one example, a trader is someone who buys stocks due to their position in the market with a plan to react swiftly when certain valuation targets are reached, either in profit or loss.  An investor, on the other hand, is someone who buys shares of companies whom they’ve researched and feel comfortable investing in with the intention to profit from both dividends and capital appreciation over a longer time horizon.

To compound the benefit, dividends are reinvested into more shares.  An investor monitors the valuation of their security and if the price drops, analyzes the reason and determines whether the decline affects the long term viability of owning the stock.  The reaction to volatility is very different in traders versus investors.  The trader reacts regardless of reason for price movements.  The investor continues to hold if the fundamentals of the company have not significantly changed, much like you would if you were the sole owner of that particular company.  The investor’s discipline is to NOT react to short term volatility, but rather with self-control and temperance with one eye on the economy, again, much like you would if you were the direct owner of your own business.

Sometimes in market volatility investors forget their disciplines and react like traders, but with no strategy or discipline.  Don’t get me wrong, I am not advocating that you unequivocally hold all of your investments regardless of circumstances.  In fact, I am an advocate of active management of investments based upon their fundamentals, technical indicators, quantitative analysis, and their relative strength as well as cycles of economic health and deterioration.  But investors can get burned when they forget that they are investors and allow their emotions to get the best of them, reacting like traders.

It’s been three years since we’ve had a 10% pullback in the S&P 500 and as a result, investors often forget that pullbacks are common during bull market cycles.  In fact, we expect about one per year.  My advice to you is to remember which you are – a trader or an investor, and make sure your disciplines remain congruent and consistent with who you are, as either an investor or a trader.

(Author’s note:  Due to industry regulations, I am prohibited from responding to any online comments. I welcome you to contact me via e-mail:  louann.schulfer@lpl.com ).

LouAnn Schulfer is co-owner of Schulfer & Associates, LLC Financial Professionals and can be reached at (715) 343-9600 or louann.schulfer@lpl.com .  www.SchulferAndAssociates.com

Securities and advisory services offered through LPL Financial, a Registered Investment Advisor.  Member FINRA/SIPC.  Accredited Wealth Management Advisor SM and AWMA® are trademarks or registered service marks of the College for Financial Planning in the United States and/or other countries.  The Accredited Investment Fiduciary® designation is earned through the Center for Fiduciary Studies.