Archive for November 1, 2012

Wall Street Firms and New Investors

by Clarita via MorgueFile

Wall Street firms are wrong concerning how you should invest when you are just starting out

Guest Post by: Wealth Effect Blogger

The textbook approach for someone who is new to investing and far from retirement is to invest aggressively because in the event of a loss you have time for your account to recover before you need the money for retirement.

This might be theoretically correct but it is based on the major assumption that your behavior will not change even as your investments are rising or falling. I find this hard to believe.

Think back to when you first started to drive. Were you told “there is the gas pedal and there is the brake pedal now jump on the freeway” or did you start driving slowly on surface streets then gradually build up your experience by driving at different speeds and in different environments (lots of traffic, no traffic, day, night, etc.) This concept is called compounding experiences: taking what you learned from one experience and applying it to the next.

I’ve further found that compounding experiences works best for me when I am able to absorb lesson upon lesson over time rather than trying to learn everything all at once and under intense pressure. (I don’t know about you but I always seemed to have a brain data dump after cramming for a test in school.)

Back to my driving example, I may not like driving on the freeway at night in the rain (imagine the stock market during 2008) but I know I am a better driver when that happens because of the time I spent compounding my experiences driving on side streets in the daytime.

How confident are you in your ability to drive in different conditions?

What about investing in different market conditions?

About me:

I am a small business owner who believes most Wall Street-produced financial writings belong into one of two buckets: propaganda or painfully dull.

I am attempting to offer an alternative by creating short posts I hope people can relate to and after reading will have a better understanding of finance.

Looking forward to having you visit me at www.yourwealtheffect.com

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