How Do You Know If You’re Ready To Invest?

At MarketWatch, Shawn Langlois noticed a young investor with $10,000 asking for advice.

“I have $10k sitting in my TDAmeritrade taxable account, ready to trade with, but I’ve been learning about investing for the last 1-2 months. I bought ‘The Intelligent Investor,’ and ‘A Random Walk Down Wall Street.’ I’m not done reading the books, yet, but how will you know when you’re ready to start investing? I’m anxious to get started, but how do I know if I’ll be ready?”

Shawn then reached out to some stock bloggers to hear what they had to say. Here’s a sample:

Michael Batnick, director of research at Ritholtz Capital Management:

Start now! I would never recommend somebody do this with their retirement money, but taking risks for huge gains isn’t a terrible idea for a young person, especially given how favorable market conditions have been recently. But I will warn you of a few things: The likelihood of you doubling or tripling your money is slim at best. And if you do stumble upon beginner’s luck, the odds that you’re going to walk away with those gains is slim to none. Here’s why: There are a lot of really smart people who will be more than happy to take the other side of your trade. 90% of trading volume is done by institutions who spend millions of dollars a year on research. They have more information and resources than you can possibly imagine.

If you’re reading those two books, especially “A Random Walk,” you already know how difficult it is to beat the market. But this is one of those things that you have to find out for yourself. Nobody opens up a brokerage account, buys the total global stock market and forgets about it. So take risks. Double your money, lose it all. The only way to learn is by doing, so get going!

Eddy Elfenbein of the Crossing Wall Street blog:

When it comes to “how do I know if I’ll be ready,” I always tell investors to try paper investing first. It sounds corny, but it works. Draw up a fictional account, but one that you think you’d like. Compute the number of shares, expected dividends, etc. There are countless resources where you can follow this on the web. Then, sit back and follow it.

You’ll soon learn things about yourself. Do you constantly check it every five minutes. Are you freaking out if it drops a little bit? Trust me, you may realize you’re not the kind of investor you thought you were.

And if you want to really test yourself, see how your portfolio acted in 2007-08. Could you watch yourself take a 50% bath? It ain’t so easy. If you can do that, then you’re ready.

Posted by on November 29th, 2016 at 1:31 pm

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.