Income Statement Rich vs. Balance Sheet Rich

Do you “day trade” for short-term profits, or do you take a longer-term view of building a spread bet “portfolio”? I do a bit of both, in an attempt to become “income statement rich” and “balance sheet rich”.

Short-Term Profit Taking

In the past week I have been able to withdraw £75 each from two of my spread betting accounts that had generated pure profits — i.e. their balances were higher than my original deposits — within a short time of making those initial deposits, thus taking some of the other people’s money off the table while leaving my original deposits to play with. In one of the accounts I could have afforded to take at least another £75 off the table this week, but for now I’m letting it ride.

A day trader would be well used to making small profits, ideally each day, and taking some money off the table each week or month as a kind of “salary” to pay the bills. This is in contrast to…

Long-Term Portfolio Building

In my trading trail account, I have thus far taken no money off the table, and not only because it has been underwater. With it now further above water than when I last reported, I could take a small amount of winnings off the table while continuing to play my original deposit. But I won’t, because in this case I’m looking to make even higher profits down the line by keeping my money “invested”.

A traditional investor would be very familiar with this approach, but most first-time spread bettors might not.

Income Statement Rich vs. Balance Sheet Rich

In many of the books that I have read about getting rich, wealth is defined differently by different groups of people:

• People who are “Income Statement Rich” (or “cash rich”) have a high salary but they spend most of it each month, such that little or no accumulated wealth accrues on their personal balance sheet.
• People who are “Balance Sheet Rich” (or “asset rich”) have a more permanent form of wealth tied up in physical assets like property, despite (in some cases) having little income.

Income and Assets: Which Is Best?

Those who are “income statement rich” are pretty much tied to their high-paying day jobs or day trading success, and are reliant on it continuing. I have many friends like this, who are effectively living “hand to mouth” despite their two or three-digit incomes.

Those who are “balance sheet rich” can relax, safe in the knowledge that their future well-being is assured… providing they don’t have to “draw down” their asset base in order to fund today’s essential expenditure because of their lack of income.

The answer, of course, is to generate enough short-term income to pay the immediate bills while having some income left over each month to boost the personal balance sheet. Eventually, a balance sheet full of income-generating assets could itself be sufficient for paying the bills. Then you’re home and dry, providing you live within your means.

Tony Loton is a private trader, and author of the book “Position Trading” (Second Edition) published by LOTONtech.