How Young is too Young to Invest

It’s never too early to start learning about investments, and any enthusiasm you can share with a child will (you know I’m going to stoop to this one) pay dividends in the long run. However, it’s important to keep your expectations realistic and understand that just because a child finds finance a little boring now doesn’t mean he always will.

I write from personal experience. I’ve tried the American martyr lifestyle, working and being miserable, and I hate it. I’ve had enough, I’m done with that nonsense, and so my father has once again become my hero. He is an investor by trade (I can’t stop today, can I?) and has worked off and on as a pilot. When I was little, I had posters of F15’s and the beautiful SR71 Blackbird on my wall. Flying was cool, very, very cool, and I wanted to take to the skies in imitation of the man I most admired.

Now, while I having nothing against airplanes, I see that there are better reasons to imitate my father. The man started out with nothing and forged his own financial future. He answers to no one but the market itself, and has all the freedom of the vaunted American dream. I value his insights on trading and while I have my own strategies, they are to a large degree based on the fundamental knowledge I got from him.

As a little girl though, I found puts and calls to be bizarre, abstract, and frankly not anywhere near as cool as airplanes. Finance was not something I could relate to, partly because I lacked the math skills. Contrary to popular belief, a true understanding of finance requires understanding probability and calculus on a deep, intuitive level. Years of experience in the market give traders like my father such an understanding even if they don’t know how to formally manipulate the mathematical symbols. For me, three years of graduate studies in mathematics laid a foundation for understanding finance both “on paper” and in a more real, intuitive way. As a mathematician, I can make the distinction between investing and gambling, but as a child, I could not. The stock market sounded like a big casino to me, and that I did not like. An inherent hate of gambling is wired into my brain and has been since birth.

Then there was the paperwork. “You can paper trade,” my father told me when I was a young married woman with no capital of my own. I have no ability to keep track of paperwork. Even the idea of having to update a spreadsheet by hand makes me shudder. I enjoy the decision-making aspect of being a trader, but the accounting aspect is horrific. In truth, I think good traders make poor accountants and vice versa. To be a talented trader, you have to think like the market. That means being comfortable with chaos and change, and not being thrown into panic when things don’t “make sense.” My dad learned investing in an era when paperwork was an ugly but unavoidable reality. I, on the other hand, have become dependent on computers and have high expectations. I just could not get interested in paper trading.

My dad did the best he could to get me interested in finance, but today it would be trivial to turn a young would-be investor into a real pro. The software that accompanies my brokerage account is brilliant. Thinkorswim offers every feature a trader could want, and if you disagree after opening an account, then let them know what it is they’re lacking. They continually update the software, and because they put algorithm before appearance (programmers after my own heart!) they add features quickly and well. Not only do they give me every tool I could want in order to make trades, they give me a paper trade account as well.

That paper trade account is the best video game ever programmed. It makes MMORPG’s look about as much fun as scrubbing toilets with a toothbrush. If you end up losing your virtual shirt paper trading, or if you just want to try new strategies, you can reset it. I did so a couple of months ago in order to show my husband that, while I have made mistakes in my early trading, I now know how to make a living. I have tried to make my paper trade account very conservative by buying things too high and selling too low in order to simulate “real” market conditions. Still, because of Thinkorswim’s brilliant software, I was able to pick some sweet trades that have made me over 66% virtual return. Some of the same trades are in my real account, but I opened them later and they have yet to shine. Because I did similar trades in my paper trade account, I can say with confidence that although they don’t look so hot now, in a month or so, they’ll be beautiful. My husband has been very reassured by this and is becoming more and more bullish on my trading.

The Thinkorswim software has truly captivated me. As a high school student, I was fascinated with computers and would have been thrilled to have such an exciting game. If my dad had been able to give me a Thinkorswim paper trade account, I would have found finance exciting instead of abstract. The droning voices on the financial news would have been given meaning, since I would have been able to apply their insights in my virtual trades. I would have experimented with different strategies, had discussions with my dad, and learned from failure.

If technology had been more advanced when I was in high school, I think I would have started investing at a much younger age. At twenty-nine, I am mentally kicking myself for all the years of job-induced misery/poverty that I could have avoided. I do take comfort in the fact that there are people older than I who still damn themselves to employment hell. Ok, “schadenfreuede” would be a better word than “comfort”. Still, I regret not having started earlier and with more confidence. Self doubt is a very expensive vice for a trader to have, and there is no excuse for someone growing up in this era to suffer from it.

High school students and college students should definitely be paper trading on a regular basis. If they cannot use a parent’s brokerage service to do so, they can use Yahoo finance or the CBOE website. Both offer free paper trade functionalities. Although all the free paper trade services I have seen are abysmal compared to Thinkorswim, they are better than nothing. If you have not been spoiled with what must be (I kid you not) a divinely inspired trading platform, Yahoo and CBOE might not be so bad.

Be sure to set a realistic paper trade limit. We would all just love to start with one hundred thousand cash, but in reality, you will probably start your trading with around five thousand dollars of savings. If you use that as your starting paper trade balance, then you will get a realistic idea of your ability to succeed.

If you are unsuccessful at paper trading, chances are you need to refine your strategies. I say this assuming that “unsuccessful” means you have consistently and repeatedly lost money. Even the best strategies will fail at times, so you need to think carefully before judging yourself a loser. The converse is also true; a bad trade can be a lucky trade, so don’t assume you are genius because you made an initial paper trade profit with one or two positions. (My confidence comes from the fact that my paper trade wins have more than offset my paper trade losses, which have been substantial, though not as much so as the wins.) Realistically, you will have good and bad trades, and your success lies in minimizing the latter and maximizing the former.

Once you have found a successful strategy and amassed enough capital to open an account, then it’s time to start investing! I don’t care if you’re eighteen or eighty. You are never too young or too old to start trading. It is experience and knowledge that matter, not age.