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The Difference Between Fundamental and Technical Investing

Moving beyond the 401(k) to advanced paper asset strategies

Over the years, I’ve had the privilege of talking with thousands of women who want to get into the investing game. Usually these are women who have realized that it’s time for them to take control of their financial future rather than rely on a man or a job to provide for them.

But not all of these women are ready to quit their jobs or radically alter their lifestyles in order to begin investing full time. Some are stay-at-home moms who want to make some money in their spare time. Others are not in a position to take a huge risk.

The good news is that no matter where you are in life personally, professionally, or financially, there is never a bad time to start investing and never too small of a beginning.

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Get Rich Dad's 6 Rules for Investing in Stocks.

Many of the women I talk to are interested in investing in stocks, bonds, and mutual funds—paper assets—as they have the lowest barrier to entry, can be done in their spare time, and are most familiar to the average investor.

But unfortunately, familiarity does not mean expertise or even working knowledge. Most women’s knowledge of paper assets extends to investing in mutual funds through a 401(k). If you want to know more about why this is not only a bad way to invest but also a dangerous one, please read Rich Dad Advisor Andy Tanner’s book, 401(k)aos, which you can get for free here.

When I talk to women interested in increasing their financial knowledge regarding paper asset investing, I usually ask them to start with understanding the difference between fundamental and technical investing.

Fundamental investing

The name is almost self-explanatory. An investor who focuses on fundamental investing is most interested in the fundamentals of a company she is investing in. This means she carefully reviews the financial statements of a company she’s interested in and then takes into account the economy as a whole, as well as the specific industry she is investing in. She then uses this knowledge to decide whether or not to invest.

In order to do this, you need to know how to read financial sheets and also how to spot trends and opportunities in those financial sheets. Plain and simple, this takes financial education, but it’s well worth it to understand what you’re investing in (or not!)

Technical investing

Robert’s rich dad said, “A well-trained technical investor invests on the emotions of the market and invests with insurance from catastrophic loss.” Technical investors are adept at studying the trends of the market and then using certain techniques such as short selling to capitalize on the market. They buy on price and market sentiment, not on fundamentals.

As with fundamental investing, technical investing takes investment in your financial education to understand the strategies needed to both be successful and to protect yourself from catastrophic loss. But once mastered, technical investing can be quite rewarding and fun.

Start with financial education

One of the reasons that investing in stocks seems risky to the average investor is because she does not understand the difference between these two types of investing techniques. More than likely, many women have heard horror stories about others who have tried to invest but lacked the proper knowledge to do so—and the devastating effects it may have had.

But as always, knowledge is power. And what’s riskier, not investing in your financial education and blindly trusting in mutual funds to perform well as you sink your hard earned money into them, or making time to understand a more sophisticated way of investing and investing with the confidence that comes with knowledge and expertise?

It’s not even a competition. Today’s your day to start investing in you and your financial future.

If you want to know more about fundamental and technical investing, I invite you to check out Rich Dad Coaching, where you’ll find a wealth of classes to take you to the next investing level.

Download Rich Dad's 6 Rules for Investing in Stocks

Original publish date: September 10, 2015