Wall Street Firms and New Investors

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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10 Comments
  1. Couldn’t agree with you more! Looking forward to those short posts.

  2. Thanks for sharing your short post and blog with us! I don’t disagree that some people need to be slowly introduced into investing, but I also believe that people simply need to educate themselves and jump in.

  3. Age and risk tolerance should determine your asset allocation. And you are correct that most advisers or Wall St firms would recommend a more aggressive portfolio for a young investor rather than someone approaching retirement. But I’m not sure I would compare this to a new driver on the interstate. Interesting post and I appreciate the length. I like the idea of your site.

  4. Not bad. Some people really struggle with investing, so what you and I would think of as boring mainstream advice is actually very beneficial for them. Its all a matter of perception. I’m not opposed to hearing some alternative strategies for the ambitious and energetic, so bring on the short posts.

  5. Enjoy the analogy, you have to build up a discipline/tolerance to volatile to markets to become a success/experienced at it. Someone who buys and dumps at the first sign of trouble again and again isn’t learning or “compounding experience”, but going off pure fear and emotion.

    Cheers, nice short and sweet post

  6. I like this post, succinct, and got me thinking about my investment strategy. I like the idea of learning before jumping straight in. Just life with driving, there are high stakes in investing (your money), so do a little research and practice a bit first before going all in!

  7. You can read and study forever, but the best way to learn is to dip your toes in the water. If you buy high and the market falls, then you find out what kind of investor personality you have – really fast. Just don’t throw all your money into the market when starting out, just invest what you don’t need to live on.

  8. Even though I’m a PF blogger, I don’t really feel all that comfortable about investing, which is why I hand it over to a professional to do for me; I know it’s something I could do myself, but I just don’t have the confidence, and that could translate to bad decisions on my part (it’s also why I never really blog about stocks, mutual funds, etc, although I am comfortable with asset allocation). Driving, though? I am VERY confident driving in all weather conditions… I did grow up in NE Ohio, after all.

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