College Students: Assess Your Readiness to Invest-Minyanville

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College Students: Assess Your Readiness to Invest

Matt Ford Mar 31, 2009 9:50 am

College Students: Assess Your Readiness to Invest


		Be patient and prepare before making investment decisions.

"I've seen you guys can shoot but there's more to the game than shooting. There's fundamentals and defense."
--Coach Norman Dale (Hoosiers)

After class the other day, a student informed me that he had been watching Citigroup (C) cascade lower and thought that it might be time to buy some shares. However, he had never bought stock before and didn’t have an account for doing so. He sought guidance on how to prepare for investing.

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Before placing hard earned coin in a brokerage account, students should reflect on how prepared they are to participate in financial markets. Here are some checkpoints that can be used to assess your readiness:

High cash, low debt. Students should build at least six months worth of living expenses in cash (i.e., check, savings, or money market accounts) prior to investing. Moreover, if you’re lugging thousands of dollars of student loans or credit card debt, you’re usually better off paying down the debt before getting involved in stock markets. Ideally, you want to be liquid—lots of cash savings with low amounts of leverage—before assuming stock market risk.

Retirement accounts. If eligible to participate in 401(k) or equivalent programs at work, then students should consider diverting a fraction of their income in this direction. Not only does this initiate the process of retirement nest egg building, but students can begin observing the consequences of their investment choices. Employer matches and favorable tax treatment further increase the attractiveness of this opportunity.

Skill building through observation. Traders are often taught to ‘paper trade’—i.e., buy and sell securities in pretend fashion—before actually putting investment capital at risk. Another approach is to learn by watching experts in action. This is where Minyanville can really help. Embedded in Minyanville’s daily content are the thought processes of dozens of financial market professionals who share what they are thinking and doing on a regular basis. By routinely following content posted on the Minyanville website, students can gradually develop effective market thought processes and elevate their financial market awareness.

When faced with investment opportunities, novice investors are prone to ask, “How much can I gain?” However, seeking reward before managing risk (the proper question to ask first is, "How much can I lose?") can exact a steep tuition. Students who rush into financial markets tend to pay up in this regard.

Alternatively, students who patiently build their state of readiness are better positioned to preserve capital once their decisions ‘go live.’ Proper preparation increases their chances of financial market success over time.

In memory of our fallen friend and trusted colleague, Bennet Sedacca, 100% of the donations made to the RP Foundation through April will be channeled to philanthropic endeavors consistent with the RP mission, working closely with the Sedacca clan in the distribution of those funds. We thank you kindly for your support as we strive to effect positive change in the lives of children.

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