The Importance of Secondary Income When Day Trading

Last Updated on November 25, 2020 by Oddmund Groette

If there is one thing I would like to emphasize with this website, it is the fact that day trading is very hard. On top of that, you always have financial insecurity. When I first started day trading I had to let go a lot of things: no dining out, no travelling, no vacation etc. Very few have the discipline to sacrifice that. If you have a secondary income, that will take a lot of stress from your trading. However, you cannot mix day trading with a full-time job unless you specialize in a niche, for example just trading the open.

One of the things I have done with my daytrading profits is to invest in real estate. My trading has over the years been quite good, but 2012 is turning out to be just grinding. But luckily I have been able to save money over the years and have now invested in real estate. That takes a lot of pressure from my trading. Perhaps too much, as I have been careless trading lately. My research has also halted a little bit. So one has to find the right balance between security and risk-taking.

There are so many advantages to investing in real estate (thanks to JP Janssen for tips):

1. Cash flow – Relatively little work is required to maintain properties, so one can focus 95% on trading. If the workload is still too large, one can easily hire someone for a cut of the rent (at least in Latvia, where I live).
2. Retirement – The properties will have value for decades to come. I.e. a secure cash flow (even if rent falls into half, one still has an income … unless the properties become vacant  – highly unlikely)
3. Risk management – After a good period of trading one can convert the gains into real estate. Both the secure cash flow and this realization of gains make it easier to handle risk (in my opinion).

That said, I’d like to diversify into other high yielding assets on other continents as well.

The pros and cons of home (or apartment) ownership are different for traders:

1. We have highly irregular income – so taking on debt, and spending cash, is much riskier than for people in regular jobs.
2. We can (hopefully) earn a high return on capital – so tying up cash is very costly compared to regular people who earn pitiful amounts on their savings.
3. We are highly mobile and can live anywhere, we aren’t tied to one job location.

Given all this, I want to consider the pros and cons of buying a residence vs just renting.

1. Renting can be a hassle – landlords can throw you out, you have to get references and paperwork, they can visit and check up on you, institutions are suspicious of renters etc.
2. Renting is very flexible – no maintenance can move fast and easily etc.
3. Renting frees up cash to trade with, boosting your income (if you can scale your strategy).
4. Renting has less risk – major repairs, nightmare neighbors, property crime etc.
5. Renting leaves you exposed to long-term increases in nominal property prices.
6. Renting avoids the risks of debt.

So, assuming you have enough cash to buy a reasonable residence without any debt, which is the best option for a consistent trader?