A recent article in a financial magazine made the assertion that the top 1 percent of the population made a higher profit rate than traders in the bottom 99 percent in 2014. This isn’t a surprise, but the reason given for it was; they left their money alone. It’s surprising because it goes against all the advice that top short term traders usually give. When you look at this report though, there are two things to keep in mind before applying this philosophy to your own routine.
The first thing to remember is that the richest 1 percent have the ability to be a little more complacent if they want to, but they also have the resources to get the best information with ease. It’s not uncommon for the rich to get richer, but there are methods of trading that can help even the poor get richer if they have the right resources. The most prominent new method is binary option trading. Yes, there’s risk here, but it’s always a calculated risk, which cannot be said for other types of trading. In other words, writing this off as “the rich getting richer” is not a valid excuse anymore. The tools are available to everyone now, they just, for the most part, choose not to take advantage of them. It costs time to get there, but it’s something that many people that never could before now can accomplish.
The second point to remember is that the market did extraordinarily well last year. It won’t do this every year. You need to prepare for this and find ways to be just as profitable next year regardless of how much things increase or decrease. Using binaries, learning the ins and outs of different marketplaces more completely, and testing out new short term methods will give you an advantage over others that just buy and hold. Over the long term, the investors that don’t touch their money will have their money grow at the general rate that the rest of the market does. By timing things right and trading only when you have an advantage, you can eliminate many of the bumps in the road. Once you gain a level of expertise, you will see that your profit rate climbs upward more steadily.
Problems with the article
The article cites Warren Buffett’s advice to invest 90 percent of your trading capital in an index that mimics the S&P 500, and says that following this is why the richest 1 percent made more money. In 2014, this was pretty good advice. The S&P set new high after high, and ended the year almost at the top of that. Over the course of the year, this index gained about 228 points–or, over 10 percent. This is definitely not typical. Gains are usually pretty steady when looking at the long term, but some years are better than others, and 2014 was one of the best years ever. Will the S&P ever see a year like that again? Maybe, but that’s certainly not something that should be counted on. Buffett’s advice is great for most people, but it will seldom be this profitable for you. By adjusting your methods and accounting for the fact that 10 percent increases do not happen every year on their own, you can find ways to make sure that you make at least this every year, if not more. Remember, a lot of the best traders on Wall Street call 10 percent a great year. And this past year, it was the norm. This is not going to happen often, so get ready for that by boosting your skill in 2015.