A lot of people who start investing eventually have the desire or idea to make investing their Full-Time income activity. This idea is further encouraged by various characters on social media who state it is possible. So today I will be discussing if it is possible to become a full-time investor or trader in South Africa (this also applies to any part of the world of course).
Let's get into it...
What is a full-time trader/investor?
A full-time trader/investor is someone who has the majority of their income derived from their trading and investing activities. This means that they live off their investing and trading. This image and idea tends to look glamorous on social media. Promises of easy money, traveling, material wealth and other things attract many to this idea. The concept is mainly promoted by intra-day traders or day traders. These are people who tend to hold market positions shorter than a week, sometimes even a day hence the name "day trader". They attempt to take advantage of daily price movement to generate an income. You may have seen social media posts like "make $500 a day in the market". There are plenty of circles promoting daily income from the market. You also get medium to long-term investors who believe it is possible to live of investing by careful investments and then liquidating a portion of their portfolios to take profits and live of the profits or dividends. Regardless of if you subscribe to the day trader approach or long-term investing approach the question remains...
Can you be a full-time Investor/Trader?
It Depends am not going to drag this out, instead let me give you my answer upfront and then tell you why I say what I say. My answer is.... It Depends... for most people I would say NO YOU CANNOT BE A FULL-TIME INVESTOR/TRADER, especially as a Retail Trader/non-professional) yet it does depend on a few things. It's possible however I would strongly advise against it... for most people I would say NO YOU CANNOT BE A FULL-TIME INVESTOR/TRADER, especially as a Retail Trader/non-professional) yet it does depend on a few things. It's possible however I would strongly advise against it. am not going to drag this out, instead let me give you my answer upfront and then tell you why I say what I say. My answer is.... It Depends... for most people I would say NO YOU CANNOT BE A FULL-TIME INVESTOR/TRADER, especially as a Retail Trader/non-professional) yet it does depend on a few things. It's possible however I would strongly advise against it... for most people I would say NO YOU CANNOT BE A FULL-TIME INVESTOR/TRADER, especially as a Retail Trader/non-professional) yet it does depend on a few things. It's possible however I would strongly advise against it... for most people I would say NO YOU CANNOT BE A FULL-TIME INVESTOR/TRADER, especially as a Retail Trader/non-professional) yet it does depend on a few things. It's possible however I would strongly advise against it.NO YOU CANNOT BE A FULL-TIME INVESTOR/TRADER, especially as a Retail Trader/non-professional) yet it does depend on a few things. It's possible however I would strongly advise against it., especially as a Retail Trader/non-professional) yet it does depend on a few things. It's possible however I would strongly advise against it. especially as a Retail Trader/nonprofessional) yet it does depend on a few things. It's possible however I would strongly advise against it.It Depends.. for most people I would say NO YOU CANNOT BE A FULL-TIME INVESTOR/TRADER, especially as a Retail Trader/Investor(non professional) yet it does depend on a few things. It's possible however I would strongly advise against it.
I can hear a swarm of day traders and day trader hopefuls already attacking me, especially the forex circles. So let me explain...
The first hurdle to full-time investor/trader glory is the basic things you actually need to become sustainable long-term. So, what do you need?
A Business Mindset
The first thing you need to understand is that you are starting a business. Yes, it's a small family office or what we would call a private investment house. If you do not understand that you are starting a business, then prepare to suffer. Why? Because you will not accept the reality that most businesses fail especially new ones in South Africa. Your mindset will have to shift. Ask yourself how do investment companies make money? Mainly 2 ways.
They charge fees to clients and charge a success fee if they can grow the value of their client's portfolio. Who is your client? You are...
how are you charging yourself fees? Can you see the challenge yet? The reason investment companies generally always need more clients is because the more clients the more capital they have to levy fees on. Since you cannot take outside capital legally and the majority of your income comes from your investment portfolio, how are you going to grow when you have to withdraw 2% every year to sustain your business. You are essentially selling investment services to yourself when you go full-time. This is important to understand because it is how investment accounts are blown up.
So let's say the mindset shift has occurred and you understand that you are starting a business to essentially sell yourself investment services. What do you then need to get going?
Administrative set-up.
This is the simple part but is the part people overlook and mess up. You need to obviously register a company unless you become a sole prop. There after ensuring your tax structure is done proper according to your business's needs. Do the research required to understand how your type of business is affected by tax and how it bills its tax-deductible expenses. Failure to do this may result you trading & investing on behalf of the taxpayer when you have to fork out your money to SARS (ouch!). After you got your corporate structure and tax structure set up you have to make sure your banking is set up not to harm your gains. Handling capital is expensive and banks love fees. Do not let them screw you.
After setting up the above the next thing you will need is tools to work.
Technology and Brokerage Services.
The broker you choose can be of benefit or harm to your business. So, choose carefully. If you are thinking of going full-time and you do not know how to choose a broker that is friendly to your desired operation, then you have no business going full-time. Why? Because it indicates that you may be too inexperienced. So, I am not going to tell you how to choose a broker, this you should know. All I can say is make sure you understand the fees and that the broker has enough assets listed on their platform for you to execute your trade plan.
You also may need extra technology and software to assist you with market research and getting information. Major investment companies use the Bloomberg terminal or Reuters Eikon, these will set you back between R120 000 to R400 000 for a single subscription per year. There are less costly options, you can look at trading view, banzinga, darkqube and a few more others. What about research from your broker? If you believe that research is designed to primarily help you make money, then be prepared to suffer. Research from your broker is designed to make you trade/invest more so the broker can earn fees via commission and spreads. If you do not understand that then you are too inexperienced to even continue this.
So, you got your admin done and got a suitable brokerage service as well. What's next?
Well, it's now time to operate the business and for that you need an operational plan and most importantly you need...
A Trade Plan/Asset Management Plan
Your trade plan/asset management plan is your Investment & Trade Process. This needs to be risk adjusted to your expected returns and losses expectations. It's important to know how your system will perform under various scenarios and circumstances.
Why? so you can calculate what you need to keep your business afloat.
It is always surprising to come across how a lot of retail traders just do not have a plan that is scenario tested. Instead, they perform random unjustifiable trades that are based on "it just looked good". Worse they buy some internet system that they do not understand and let that trade/invest for them and then panic when there is losses. They panic because they do not know under what circumstances they should expect specific levels of gains and losses. Any good trade and investment system must show how it makes gains and how it makes losses because both will be there.
Let's say your process produces 20% returns per year on average under volatile market conditions and it makes losses when market volatility drops. The losses are a reasonable 10% per year. How does your business handle this? What do you do with your gains? How do you pay for expenses when there is losses? and how do you cover the losses?
You need a plan that goes beyond just how you will make trade and investment decisions. You are running a business.
Then there is the big question... the most important thing to all investment companies. CAPITAL... You need CAPITAL aka MONEY.
Capital
You are going to need capital to feed into your portfolio. The seed capital you have will form the foundation of your performance in monetary terms. The question then becomes...
How much money do you need?
The seed amount should be based on your conservative performance expectations. This applies both to gains and losses. Add also your expected expenses. Let me illustrate with an example...
Let's say in your first year you expect your potential gains to be a whopping maximum of 30% and losses to be contained at a maximum of 20% of your seed fund. If your annual expenses are:
Admin costs (banking etc) = R3 180
Technology (internet, research tools etc.): R8000
Salary: R180 000
Extras: R2000
Total: R193 180
This amount excludes your starting costs and potential taxes.
So, if you achieve your max 30% in a year gain and you plan on paying your expenses from your gains, it means you will need at least R650 000 to make 30% of its which is R195 000. In this scenario it means you take all your profits to pay your expense. However, if you do not achieve the potential maximum gains you will have to dip into your principle capital.
If instead you get losses and contain them at 20%, it means you lose R130 000 and you will still need R195 000 for expenses. In effect you lose 50% of your capital. Can you see how quickly a bad year can result in doom?
The example above tells us that you need way more than the minimum ideal amount. Theoretically your expenses should be getting covered by a 2% management fee. This then means you need about R9 800 000 to make R195 000 in management fees. Yeah, you read that right. You need at least R10 million to earn R15 000 per month as your base salary. And are you really earning it if it is coming from your initial capital?
If you make 0% gains and are out of pocket 2% that is a lot easier to gain back the following year than 30% of your capital. This is the part that most people do not understand, professional fund managers and traders are not paid from the money they manage. They earn a monthly salary that clients pay regardless of how the fund performs (yes, there is a bonus if you perform well). Earning a salary takes a huge psychological strain off them. Imagine the psychological pressure that exist when if you do not make money then it means you will starve. Can you handle that?
Most people telling you to become a day trader will not do the above calculations with you. Why? Because you might not buy their course or training program? Instead, people tell you about all the wonderful gains and how if you follow their teaching, you will not lose money. That is just a load of bullshit, even the best investors, hedge funds, traders and quant systems lose money. Nobody has a market holy grail silver bullet. (Maybe My Mentorship Program is, click here to learn more about it lol).
But Omega, I will trade and make a minimum of R750 per day, you will see...
R750 per day you say... hmm multiply that by 20 days equals 15 000 per month which equals plus/minus R150 000... okay... You are making this amount starting with how much?
R750 is 1% of R75 000. Excluding the compounding effect, can you really make 1% every day? Nobody can, that is 200% in 10 months. Let's say you have R750 000 instead, you would need to make on average 0.1% which equals 2% per month, that is 20% in 10 months. That is potentially possible to be your average over a 10-month period. Just remember you still have to account for potential losses. Even with R750 000, those become difficult to manage.
So basically, you need money or be really good, your best bet is to rather have a lot of money. Brokers have warnings such as "76% of retail traders lose money when trading with this broker". That warning is not there for your amusement, it is telling you something about how few succeed in retail trading or investing.
If you cannot stomach the above, then it is pointless for you to even hope to be a full-time investor/trader. You can try wing it, but lack of understanding will get you out the game faster than ever and leave you with major psychological trauma.
So, can you stomach all the above? If so, then you may continue and find out what are the risks and benefits involved... and how to actually be a full-time investor/trader...
What are the risks involved to being full-time?
Let's look at a few risks involved for your trading business...
Usual Business Risks
Firstly, you face the "Usual Business Risks" such as a difficult economy that may negatively affect the prices of goods that you use. Furthermore, you face compliance risk such as tax or a change in policy for retail investors/traders. You face infrastructure risks, what if your broker's systems are down or their business tanks? worse, what if your internet is not working during a key period of market activity. What if your margins are low from your results, how do you continue? There is so much think about.
I can hear you say But Omega why should I worry about things that have a low chance of happening?
It may seem like all the things I have said above have a slim chance of happening and that may be true. However, to not prepare for risk because you think it might not happen is stupid. The day it does happen it may unravel your whole business even your life. So, take the time to think how you will face the above and protect your money.
It does not stop here...
Investment Risk
Because of the industry you are operating in, you will have Investment Risks. These are risks that exist for all investors, worse for you because your revenue that is generated from your returns sustains your business. So, losses will be difficult to accept and stomach. These Investment risks are but not limited to Market risk, Inflation, Liquidity, longevity risk, horizon risk, concentration risk etc. There are plenty more. Add to that your portfolios risks that is derived from the risks that are faced by the companies you have invested in.
Yes, investing has plenty of risks... I hope you are starting to realize that...
Can you handle and manage all these risks? Dealing with the next risk listed below will answer that question for you...
Psychological Risks
As a full-time investor you will face Psychological Risks... You may buckle under pressure when you cannot make money which can lead you to make desperate investments and trades. The market is always testing your mental resolve, you will face plenty of psychological strain as a portfolio manager or trader. Seeing your money potentially be lost to you will be an emotionally stressful situation. If you cannot handle that then prepare to lose money. Even professionals collapse sometimes due to issues with performance. You must create a plan on how to handle your psychological risks. Get a performance coach, have a psychologist or therapist that you see or have your own way but whatever you do have a plan to deal with yourself before starting as a full-timer.
The above point leads us to the greatest risk of all... *drum roll*...*..
YOU... yes you are the greatest risk.
Humans seem be naturally fallible creatures. We attract error and mistakes in almost everything we do. Even the most basic tasks can be made fatal when you add the human element. You are potentially the biggest risk... but what about you is risky?
Your business management skills, discipline to execute a plan and investment system and not be broken down by drawdowns. Your ability to grow capital without breaking the law. The way that you perceive the world, your environment especially social, your ability to grow and learn. There is so much about you that possess a risk to your business. Are you really the right person to handle your portfolio?
How is your mentality? do you love this or just want money? What are your ambitions? Will you stick with this?
It is okay to admit that maybe you are not cut-out to be a full-time investor/trader. I am not cut out to be a rugby star, but I still enjoy playing the game. If you do not manage yourself as a risk factor you may deplete your capital. Remember, the market has never taken money away from anybody, people voluntarily make the wrong investments and trades. So, if you lose money, it will most likely be your fault.
But let's say you can handle all the risks; you have a plan, and your mentality is in the right place... what benefits await you on the other side of all this potential loss?
The benefits of being Full-Time
hmm... there are not really any benefits to be full-time. Yes, I know that forex trader or day trader video told you a lot of nice things. Such as...
Work from anywhere...
You can work from anywhere in the world with an internet connection. Live a life that looks like a vacation. This is maybe true but is not as glamourous as it is made out to be. For starters it may actually be impractical depending on your location. Think about it, if this was so easy why are most fund managers not remote workers? Managing capital is not the same as being a web developer or software engineer or graphic designer. There can be limitations such as time zones, compliance issues, tax considerations, banking, cash handling etc. But the biggest challenge will be the fact that you will spend time doing the same thing you did at home just in an apartment/house that is in a different country... you will eventually realize the benefit of working from anywhere is pointless. Then the next benefit is...
You work for yourself
This benefit often promoted as a way for you to take back your time and determine your own path. This can happen with being full-time. You control your work and life schedule. This can be very empowering... but at what cost? When you work for yourself, your income is totally dependent on you. There is no boss to nag to, there is nobody else who is actually worried about paying you your salary. As an entrepreneur I can tell you that few things keep me up at night more than the fear of not being able to pay my employees, do you really want that stress? Remember when you are employed your salary is somebody else's problem. This is the start and painful reality people learn when they become self-employed. They see the number one benefit of employment is not being directly responsible for your pay.
Working for yourself gets dreadful very fast when you cannot put together your salary at the end of the month. Are you ready to pay the cost of working for yourself? Taking all your employers' responsibilities.
Make Money
This is the main benefit that attracts people to being a full-time investor/trader. The forex and day traders promote this idea well. The idea that you can make money. Yet the statistical data says that You cannot make money. Most retail investors/traders (non-professionals) lose money in the market especially when they follow the idea of day trading and having daily monetary targets. It almost seems like a cruel joke, but millions of people fall for this every year. Yes, you can make money from being an investor but being full-time will not make much of a difference to you as a retail market participant. Professionals make money consistently... because they charge fat fees that are not dependent on their investment performance hahaha. So, if making money is your motivation for going full-time, forget that right now.
I may seem like a dream crushing hypocrite because I am active in the market and enjoy all the benefits above. So why am I basically telling you to not do what I do? (I don't want competition, lol just joking, come to the market so we can take your dumb money)
I am trying to prevent you from doing things the wrong way. This is the way people sell to you that is just not realistic for most people, me included.
So how do you become a full-time trader/investor properly?
The first thing you do is you do not become a full-time trader/investor. Do not let your income rely on investing returns. It never ends well. Rather you first ensure that you have a steady flow of capital into your fund. You can do this by having a job or having a business. Increasing capital inflow into your fund means that your financial returns will grow nominally even if your percentage returns stay the same. 10% of R1 million is very different than 10% of R100 000 from an income perspective. So, you may keep the return the same percentage wise but still grow your income by always adding more capital.
This is what I have done with Money Mondays. I earn from running a credit fund, mentoring people, consulting and software development then use that capital to feed my portfolio which grows the nominal return. I used to run an insurance start-up and with the capital I earned I did the exact same thing. Now I work as a tech consultant and use the income from there to add to my portfolio. As my capital grows so does my monetary returns grow even if the percentage is maintained the same especially when it comes to dividends and interest payments.
If you do not set up an income source for your fund you will deplete it and destroy it when things go wrong. This will be because you will draw an income from it and since you do not have another income you will be a burden on it and draw it further down negative returns. Since you do not earn a 2% management fee you have to get that 2% from elsewhere, just not your fund. (Now you know why I teach, it's the easiest way to monetize my skills)
Lastly do your admin right, plan your schedule and develop a trade and investment plan. If you do not know what to buy in the market, then subscribe to my mentorship program and learn. It is that simple. Once you have done all of this, you can look at the benefits of travelling, working for yourself and making money from a new perspective. Create an income plan for yourself that is not reliant on your location and then make the move. That's how I did it and it works.
Final thoughts
My final thought is that you must fall in love with investing or trading. Your interest has to go beyond money. This is the number one tip I can give you. I do this, like write articles, publish stock research, videos, analyze markets and businesses etc. because I love it. Money is just the byproduct. I did this for years before earning any money from Money Mondays, I earned peanuts as a junior in a brokerage firm but carried on to the top. Why? Because being in this space is what I enjoy doing.
Happy Investing
- Omega
Remember: Opinions expressed in this article do not and never will constitute financial advice. Every person's financial situation is different, I recommend you speak to a financial adviser about your
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