You Need a Trading Account

A diversified investment portfolio managed to a custom financial plan is what you need and will always be your best friend. This post is just for those times when you hear a stock tip (legally), have an urge to trade YOLO TSLA options, or just to see “what if”. You know this is riskier, but that’s why you need a trading account.

Trust me, it’s fun
Short-term trading or making market bets can feel like a game. It’s fun to talk about your favorite stock or trade like you would in a conversation about your fantasy team or which team you’re betting on for the NBA championship (The Brooklyn Nets). Quite frankly, that’s just more exciting than talking about tuition planning for your kid’s college (probably go with a 529 plan). Scratch the itch, you can be part of that conversation and have fun. Keep reading, there’s a smart way to bring something to the table with experience without risking your wealth.

And you’ll learn
They say the streets teach you best. I’m certainly not acclaiming to be familiar with the thug life, but I can agree that real world experience is a great teacher. There’s no better way to understand the magnitude of long term trends and the impact to your portfolio than to be hit with short term volatility and 30% swings in both directions. When it’s your money, you’re much more likely going to pay attention. Most of the lessons will be investment focused, but pay attention to your behavior/emotions as well.

But keep it under control
Being able to indulge in the excitement of the markets from a trading account means you won’t do it with your plan-based investment portfolio. You need a trading account, but not as much as you need a financial plan and long-term portfolio of investments. It’s only fun and educational when it doesn’t affect your future lifestyle and sense of freedom. Imagine planning for a down payment on your first house for $500,000, only to experience a 30% loss in the month your cash was due (this is exactly what happened in March 2020). If you don’t have other funds, that’s now a $350,000 house – and a different neighborhood.

The best way to safeguard the long term portfolio is by placing a cap on your trading account. One way to approach this is to take about half your fun budget and contribute it to your trading account. Your fun budget is anything in excess of funds earmarked for what you need (short term needs and longer term goals). Depending on your savings, that can be a huge number and you don’t have to do all of that – but don’t do more than this amount and keep it steady.

Compliance stuffs
Just remember, I’m not your financial advisor so the information may or may not best apply to your situation and you should get formal advice prior to doing anything. The information/data that is shared should be double checked by you and any conclusion that is driven based on past data is not to be interpreted as my advice for your future. I will do my best to only write what I think is true and right, but mistakes happen and we’re all learning together – this is meant to be a conversation. My employer has nothing to do with this blog – in fact, they’re probably upset I’m writing here instead of working.

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