In Part 1 [1], we discussed some general ideas about how to grow your trading account. Here in Part 2, let’s check out the impact of this concept.
Jack and Jill are two hypothetical traders with different personal motives which lead to different plans for their trading profits. Keep in mind that both Jack and Jill have the same trading strategy.
Jack is a part-time trader looking to pull some money out of the market each year to supplement his income and help pay for his boat. Hypothetically, the same trading results will cap his earnings going forward, although it allows him some additional income each year. Every year, though, Jack’s account resembles these figures:
Jack: $100,000 trading account, withdrawing profits annually:
Beginning: $100,000.00
Profits: $20,000.00 (20% return)
Withdraw: $20,000.00
Ending: $100,000.00
Jill is a full-time trader who is performing the same as Jack each year, making 20%. Her husband works and they live off his income, which allows Jill to leave her trading account and subsequent profits intact. Jill begins to make more and more money every year with the same 20% performance. Look at the rapid growth Jill enjoys in her account:
Jill: $100,000 trading account, leaving profits intact:
Year 1 Beginning: $100,000.00
Profits: $20,000.00 (20% return)
Withdraw: $0.00
Ending: $120,000.00
Year 2 Beginning: $120,000.00
Profits: $24,000.00 (20% return)
Withdraw: $0.00
Ending: $144,000.00
Year 3 Beginning: $144,000.00
Profits: $28,800.00 (20% return)
Withdraw: $0.00
Ending: $172,800.00
Year 4 Beginning: $172,800.00
Profits: $34,560.00 (20% return)
Withdraw: $0.00
Ending: $207,360.00
WOW! Jill more than doubled her trading account in 4 years, whereas it will take Jack 5 years to double his initial stake. For Year 5, Jill would only need to make 9.7% to match Jack’s profit of $20,000! Or, she could match his 20% performance and more than double his profits for the year.
We all know the amazing results of compounding money, but hopefully this example of two hypothetical traders will get you thinking about what to do with your trading profits. If the freedom to access your trading profits each year is something you need, then regular withdrawals are for you. However, if you’ve got the savings put aside or an additional income to get you by, leaving your profits in your trading account even for a few years can do wonders for your trading results, even if your methodology never improves!
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com [2]
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[tags]Trading Strategy, Stock Trading, Trading Account, Trading Profits[/tags]
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