What will make me the most money—trading vs investing? That’s a question many investors ask. The answers may surprise you.

Long-term wealth-building strategies aren’t built by aiming for outsized returns. They are built over time, and most importantly, by learning how not to repeat the market mistakes of the past.

We think it’s a good idea to invest in stocks and while not “buy and hold forever,” then “buy and watch closely.” That helps answer one important question we frequently get from investors: How often should they sell investments they own and buy new ones?

It all comes down to trading vs. investing. Different strategies bring different benefits.

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Trading vs investing: Investing focuses on building wealth over time

You will improve your chances of making money over long periods, no matter what happens in the market, if you diversify your holdings across most if not all of the five main economic sectors: Manufacturing & Industry; Resources & Commodities; Consumer; Finance; and Utilities.

Finding and holding long-term stocks is one of the main investment goals of TSI Network. While it’s certainly a strategy to buy and sell stocks for short-term gains, we feel that top-quality long term stocks will gradually accumulate stock market profits over decades. And because you’re investing for a long period of time, short market fluctuations have very little effect on long-term gains. That makes for a less stressful investment strategy.

6 truths of long-term stock investing

• Insider actions dictate integrity
• Regression to the mean is inevitable
• Investment long shots will almost always cost you money
• Financial incentives can influence people negatively
• Equities win in healthy economies
• Some markets are inherently unpredictable

Trading vs investing: Higher investment quality equals lower risk

If you invest mainly in well-established, dividend-paying companies, you’ll find that any investment or market timing mistakes you make will rarely cause serious or permanent losses. When you spread your money out across most if not all of the five main economic sectors, you’ll cut your vulnerability to market risk all the more.

In contrast, your market timing skills are bound to be crude and unreliable. They will never protect you from the risks of investing in companies with flawed business plans.

Moreover, even the best market-timing skills are useless when it comes to protecting you from untrustworthy insiders. If we have reason to doubt the integrity of a company’s insiders, we stay out, no matter how tempting it seems. Those are the risks we focus on and attempt to avoid.

Bonus Tip: Trading vs investing—here’s the riskiest of all short-term trading strategies

Short selling is when you borrow stock from a broker and then sell it. However, you eventually have to buy back the stock on the market to return it to its owner. If the stock falls in price while you are “short,” you can buy it back at a lower price. You have then made a profit. But if the stock rises in price, you must buy it back at a higher price than you sold it, and you lose money.

Attractive short-selling opportunities do come along from time to time, but it’s a hard way to make money. That’s because, compared to buyers, shorts face a broad range of disadvantages.

For one, the returns on short selling stocks are upside down: when you sell short, your maximum gain is 100% (if the stock you’ve shorted goes to zero). But your potential losses are limitless. That runs directly counter to a regular stock purchase, where your gains are theoretically unlimited, and the most you can lose is 100%. You also have to pay for any dividends declared by stocks in which you have a short position.

Instead of short selling, some investors buy put options. These offer an investor the opportunity to sell a particular security at a specific price within a specific timeframe. Like short sellers, put buyers make money when the investment in question goes down.

When you buy and sell puts, timing is crucial and very difficult. If stock prices rise, your puts can expire worthless. In addition, part of the value of a put or any option is based on how long it has left before it expires. As a result, puts (and stock options of all kinds) tend to lose value as time passes, even if the price of the stock moves in the option holder’s favour.

From time to time, some investors do profit from short sales, puts and other, similar tactics. But consistently successful investors stick with a system like ours (that is, buying high-quality stocks and diversifying across the five main economic sectors). This lets you profit more or less automatically from the long-term upward trend in stock markets.

Do you trade often but still mainly focus on long-term gains?

We prefer long-term investments, but what kind of success have you had with trading as a primary investment approach?