Let's make a few assumptions... 1) You are a daytrader who pretty much consistently books $ gains every month 2) You wish to maintain only a minimum amount necessary of capital in your trading account, such that you can continue to produce your monthly gains 3) The monthly withdrawals from your trading account more than meet your basic living costs and well-defined luxury expenditures What do you do with your excess income? Comments would be most welcome, in addition to your votes...
I'm reminded of a story told to me by a contractor from New York State who was building a "fire house" for a wealthy client. This individual aquired a fire engine at an auction and obviously needed a fire house to put it in. It was for his grandchildren to play in. At the entrance to his estate was the sign, "Too much is not enough" , a sentiment shared by my wife. As for me, I'm not doing that well, but excess profits go into utility stocks, REITs, royalty trusts, and bonds and soon a Mikimoto pearl necklace (guess whose idea that was). DS
Right now I plow all profits back into trading and trade larger positions. But once I get to a certain account size I'll be pulling money out of the trading acct for stocks, international and bond mutual funds, and REITS. I don't need the trading account for living expenses. Those are taken care of by other assets.
In order: 1. fund a commodity futures/currency trading account 2. pay off all personal debt, including mortgage 3. set aside a ton of money for next year's taxes 4. max out tax deferred retirement savings plans 5. build a cache of one year's living expenses 6. pay cash for a Volvo XC-90 7. invest in rental properties or other businesses
It's interesting to note that the most popular option so far is to transfer the excess to a bank account... surely, this mitigates the efficacy of trading well, if all one is going to do is keep the excess fruits of ones labor in a relatively unproductive state? (not much better than keeping it under the bed, eh?)... of course, I suppose it depends on the interest rate you are getting and any capital lock-up clauses in operation which, in itself, will be contingent on the amount of excess capital that you have in limbo...
This is also taken care of in assumption 3 of the introductory post i.e. well-defined luxuries that you regularly spend on...