The main difference between an investor and a trader is their time horizon or view. Investors have a ‘buy-and-hold mentality’, while traders choose a ‘buy-and-sell later’ approach.

The investor
Investors are long-term players in the market. Their investments will lie dormant (although hopefully growing) and untouched for years or even decades. An investor doesn’t make money by selling shares on an appreciated value but rather on other stock benefits like interest, dividends and stock splits over the years. As an investor you won’t be too bothered by downward market trends and dips in shares, but rather by the overall growth of the market. As an investor you would pay more attention to market fundamentals such as price-earnings ratios and stock forecasts.

Investors essentially make use of a passive investment strategy. Most would be more than pleased with a 15% per annum capital growth rate, as a gradual capital gain is what makes them comfortable. They benefit from dividend income and growth and since they barely trade their brokerage fees are low.

Investors generally favour a balanced portfolio of quality, undervalued and safe shares. Investors don’t pay income tax on their gains but rather dividend withholding tax on their dividends and capital gains tax if and when they sell their investments and realise a profit after holding their shares for at least three years.

The trader
Actively trading on the stock market is all about growing your wealth quickly and exponentially. A trader generally has a time horizon of less than three years and the focus is primarily on technical analyses like past prices and volume. They assume that the fundamental value of a stock is already reflected in the company’s current share price.

The strategies of a trader include buying and selling as the market moves, long or short position trading, swing trading – the speculative practice of selling shares mere days after you’ve purchased them in hopes that they’ll be worth a little bit more – and day trading – reacting to daily changes and trends. The goal is to grow your capital as quickly as you possibly can.

Traders are active, using fast paced and often speculative tactics. They look for capital growth of up to 15% per month and their brokerage costs are high. Traders attract a lot of income tax, as they generally fall into the highest income bracket, meaning they pay as much as 41% tax on all gains.

Or both?
There’s a general consensus that attempting to be both in one portfolio is not a smart move.

While it is possible to trade with one part of your portfolio and invest the rest (or vice versa), it’s not advisable. Rather have a trading portfolio and a separate investment portfolio. The old anecdote, “Jack of all trades, but master of none,” rings true in this case. As an investor you need nerves of steel to ignore the technical characteristics of a company in its current form and hold onto the belief that they’re irrelevant. As a trader your determination that the fundamentals of a share are taken care of and therefore nothing to worry about takes a different type of nerve.