By Kristin Hovencamp
When I first started investing, I set up a small speculative trading fund, separate from my savings and retirement accounts, otherwise known as a “Mad Money” account.
It was the mid-’90s and telecom and dotcom stocks were taking off. I was not concerned with price/earnings ratios, market capitalization, profit and loss, or if the company would ever be profitable. My personal goal was to spot trends and pick stocks that were potentially on the rise. Unintentionally, it became a hands-on way to learn the trials and tribulations of investing without touching my savings.
Whether you are an experienced investor or dipping your toe in for the first time, opening a Mad Money account allows you to make speculative bets. Speculating can be fascinating, and it can be a lot of fun, as Benjamin Graham observed in his classic book The Intelligent Investor. If you want to try your luck at it:
Create a separate investment account. Set up an account independent of your main portfolio.
Determine what percentage of your capital you are willing to invest. I based my decision on how much money I could afford to lose altogether. Author and Wall Street Journal columnist Jason Zweig uses the analogy of a gambler who prevents himself from gambling all his money away by putting a strict limit on what he is willing to lose at the casino.
Choose a sector or theme, and strategy that interests you. Your goal might be to invest in hot growth stocks or uncover undervalued companies. Maybe you have always wanted to trade options.
Put the money to work at your own pace. There is no rush to invest.
Once established, refrain from adding cash to the fund. Apply your strategy within the limits of your account size. I suggest you periodically trim your gains, cut your losses, and rebalance your positions as needed.
A Mad Money account is an imaginative way to make speculative trades that would otherwise be crazy mad. Do your research, trust your intuition, and try your hand at being a fund manager. Most importantly, track your wins and losses so you can learn from the experience!
Kristin Hovencamp is an Investment Executive and Director of Business Development with HAZLETT WEALTH MANAGEMENT, LLC, which is independent of Raymond James and is not a registered broker/dealer. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. All investing involves risk, including the possible loss of principal amount invested. No investing strategy, including asset allocation, diversification, rebalancing or dollar cost averaging, can guarantee your objectives will be met. Rebalancing a non-retirement account could be a taxable event that may increase your tax liability. 675 Sun Valley Road, Suite J1 + J2 Ketchum, Idaho 83340 208.726.0605. HazlettWealthManagement.com