What is the key difference between investing and trading?

The key distinction between investing and trading lies in the timeframe and strategy associated with each approach. Investing is generally considered a long-term strategy where individuals aim to build wealth over time by purchasing and holding assets such as stocks, bonds, or real estate. The focus is on the gradual appreciation in value, benefiting from factors like compound interest, dividends, and long-term market growth.

In contrast, trading involves shorter-term strategies, where individuals buy and sell assets with the aim of capitalizing on market fluctuations and price movements. Traders often seek to make a profit on a more immediate basis, frequently executing multiple transactions over days, weeks, or even minutes. This short-term focus typically requires more frequent analysis of market trends and can involve higher risks due to the volatility of asset values in the short run.

Understanding this fundamental difference helps clarify how individuals approach wealth management, risk tolerance, and financial goals.