Vitalie Ciobanu

Data Analyst as a Service

Tag: income

  • Investing vs. Trading. Understanding the basics.

    Investing vs. Trading. Understanding the basics.

    When it comes to building wealth and managing your finances, there are two common strategies that can be confusing for some people – investing and trading. While they may seem similar at first glance, they have distinct differences and use cases.

    What is investing?

    Investing is the process of purchasing assets with the goal of long-term growth. This strategy focuses on holding assets for an extended period, often years or decades. The idea is to build wealth gradually through the appreciation of these assets and, in some cases, earn income from them (like dividends or interest).

    Types of investments:

    • Stocks: Buying shares of a company, which represent a portion of ownership. Over time, as the company grows and becomes more profitable, the value of these shares typically increases.
    • Mutual Funds: Pooled funds managed by professionals that invest in a diverse portfolio of stocks, bonds, or other securities.
    • ETFs (Exchange-Traded Funds): Similar to mutual funds but traded on stock exchanges like individual stocks.
    • Bonds: Loans to governments or corporations that pay periodic interest and return the principal at maturity.
    • Real Estate: Investing in property, either for rental income or long-term appreciation.
    • Commodities: Investing in raw materials or primary agricultural products such as gold, oil, natural gas, or wheat.

    Benefits of investing:

    • Compound Growth: Over time, your investments can grow exponentially due to compounding returns.
    • Diversification: Reducing risk by spreading investments across various asset classes and sectors.
    • Passive Income: Earning income without active involvement, such as dividends from stocks or rental income from real estate.

    What is Trading?

    Trading involves buying and selling assets frequently, often within short time frames ranging from minutes to months. Traders seek to profit from market fluctuations, capitalizing on short-term price movements.

    Types of trading:

    • Day Trading: Buying and selling assets within the same day.
    • Swing Trading: Holding assets for several days to weeks to profit from short-term price movements.
    • Scalping: Making numerous trades throughout the day to profit from small price changes.
    • Position Trading: Holding positions for months, based on longer-term trends.

    Benefits of trading:

    • Quick Profits: Potential to make money quickly by exploiting short-term market movements.
    • Flexibility: Ability to react to market changes and adjust strategies accordingly.
    • High Liquidity: Easy to enter and exit positions due to the short-term nature of trades.

    What about risk?

    Investing tends to be less risky due to diversification and holding assets long-term. Trading can be riskier due to the fast-paced nature and reliance on market timing.

    Real-life examples of investment and trading

    InvestingTrading
    Regular contribution of a portion of the income to the retirement plan. Over the years, as the market grows, so does the investment. By the time you retire, the investments have significantly appreciated as well.Buying and selling stocks within the same trading day using technical analysis indicators to make quick decisions.
    Investing in real estate by purchasing a rental property and renting it out. The rental income covers the mortgage payments and provides a steady cash flowFollow economic news and market trends to buy and sell commodities. When the price of an asset seems to rise due to geopolitical tensions, buy a specific asset. Weeks later, after the price increased as expected, sell the asset at a higher price, earning a profit from the trade.

    Summing it up, investing is more suitable for individuals looking to build wealth over time, save for retirement, or fund long-term goals like buying a home or paying for education. While trading is best for those lucky people who have time to monitor the markets closely, have a higher risk tolerance, and seek to capitalize on short-term opportunities.

    For further reading, you might find the well-regarded portal insightful for a more comprehensive definition of these two strategies: https://www.investopedia.com/ask/answers/12/difference-investing-trading.asp

  • How I took control of my money

    How I took control of my money

    Well, starting a new “topic” on this blog, personal finance related 🙂

    Just to be clear from the beginning, I’m not a finance guru, nor am I an expert in this field. Unless otherwise stated, what I will write here is my own experience with how I did this and that and how I think it helped me.

    In no way I’m telling you what to do or how to do it.

    So, money… My girlfriend said this several times in the past year: “I created a monster!”. But let’s start with the beginning…

    I love working with data! Big data, small data, doesn’t matter, give me data 😀 Personally, I think I have an Excel and Access files for almost everything that have “numbers” in my house. Car mileage and gas consumption, home asset management (as in, I know when I bought and how much I paid for every single piece of furniture or appliance I have in my house, including serial numbers), groceries (yes, every single grocery shopping receipt itemized by product, quantity, price, store), salary income, annual savings planner, rent and household expenses, hiking plan (km/day, pace, distance etc) for long trips or tracking climbing 13 floors at me previous office (don’t ask 😀), etc.

    Don’t really remember why, but about 8 years ago I encountered this template from Microsoft (it was uglier then but it had the same idea). In their words: “This Excel template can help you track your monthly budget by income and expenses. Input your costs and income, and any difference is calculated automatically so you can avoid shortfalls or make plans for any projected surpluses. Compare projected costs with actual costs to hone your budgeting skills over time.”

    Anyway, I started using it but gave up after few months, very few months. Various reasons but mainly lack of time and lack of support from my spouse in getting the expenses/receipts to the “finance” department.

    So this happened for some good 5-ish years. I start the template, spend some hours adding the subcategories and then few months later it’s a dead project.

    Time passed by and when a divorce added up, I started everything all over (new rent, appliances, furniture etc.) and every single month living paycheck to paycheck wondering where the hell is my money going!? I only bought this, that and something else, oh and that one, and the subscription I forgot about…

    But this time was different. I think because I had the psychological help of my girlfriend. She is quite good at saving and this motivated me!

    So I started reading books and listening all possible podcasts about personal finances. I remember like it was yesterday – Christmas vacation, 2021. I read 2 books in 1 week. I listened to tens if not hundreds short-like podcasts in the car during the car rides and every single time I went to the 🚽.

    I was astonished by the fact that there is an emergency fund, savings fund, investment, kids, car maintenance…. All these “funds” I had no idea about!

    3, or better 6, months of expenses in the emergency fund – yeah sure, I have money until the next paycheck…

    Car maintenance? Of course, I will pay from my paycheck when the time comes and then I will just suffer spending less until the next paycheck.

    Emergencies? To be honest, I don’t remember how I dealt with them 🙄

    Anyway, during that same vacation week, I built a new Excel file (yeah, I know) to add my daily expenses. A very simple file with date, expense details, amount, a category and subcategory. With each day/week that passed by, I was improving the file by adding several tables, sheets etc.

    Fast forward 1,5 years, I now have an Excel file where I track my income, plan my monthly expenses, add the real expenses and have the yearly overview of how I’m doing.

    So why my girlfriend said: “I created a monster!“? Because ever since I started reading about this 1,5 years ago, finance is my main topic of discussion with anyone, especially with my daughters. Every time I mention something finance related to her, I can see her rolling her eyes 🙂

    Anyway, trying to close this post, on which I worked for 2 weeks, writing small pieces whenever I had time. Getting down from spending 4000/year on Amazon to 100/year is a big achievement that I’m really proud of!

    To anyone who wants to see where their money is going to, just start with tracking your expenses. You’ll be amazed how easily 10-15 euros in-and-there add up to a big chunk.

    If you need any help starting up with an Excel file, contact me and I will try my best to help.