A beginning income investor may think it's smart to "practice" investing before risking real money, by tracking an imaginary portfolio at sites such as Yahoo! Finance, Investopedia and who knows how many others.
This is an Online Form of Paper Trading
Years ago, newbies were often advised to "paper trade" before opening up a real brokerage account. At least that term is honest -- it's trading, not investing.
By itself, this "fantasy investing" is just a game. So I'd say that so long as you understand that and enjoy it just as you might like playing with an Xbox, then have fun.
However, go in with a realistic attitude. Don't be fooled by the superficial resemblence to "real" investing. They're vastly different.
I See No Reference to Stock Dividends
My problem with such games is that the emphasis is not on investing, but on choosing stocks that go up in market price in the short run. These sites reinforce the delusion that if you're smart enough and work hard enough, you can beat the market, and in a short period of time. Investopedia gives you $100,000 imaginary dollars with which to play, putting you in competition with others.
I haven't set up such imaginary portfolios myself but, looking around at these sites, I don't see any references whatsoever to dividends. Apprently you don't get rewarded for choosing stocks that will provide you with a large cash flow you can reinvest whether the stock's market price has gone down or up.
That's obviously a serious flaw for income investors. If you want to practice anything, practice celebrating the sudden deposit of cash into your brokerage account, thanks to receiving a dividend payment.
But let's face it, given the quarterly payment schedule of dividend payments and depending on when you buy a stock, you may not receive a dividend payment for up to three months after you purchase your shares. That's a long time to wait to win a game.
You Would Need to Track Your Game's Portfolio for Twenty or More Years, but You Can't Wait That Long
And, given the nature of these programs, that points out another flaw in them -- they're short-term.
Real investing is long-term investing. Buying stocks to sell within one day to five years is speculation, not investing.
You can't learn the value of investing for twenty, thirty, forty and fifty years by "virtual trading" for two or three months, or even a year.
You're not going to stick with a game that long, nor should you. You can't wait twenty years to learn to invest -- you should start investing as soon as you're financially ready to do so.
Short-Term Stock Buying is Gambling, Not Investing
The short-term results you obtain from tracking current portfolios are, basically, gambling. Any stock you pick now could go up or down in the next few months, depending on unpredictable events that affect the company, its industry and the overall economy.
If your stock picks go down in price, that's no reflection on you or your investing ability. Sometimes they will. The market is going down on the day I write this. Maybe tomorrow it will go down more. Nobody knows.
And if your stock picks do go up in price, that's even worse. Although you just got lucky at the craps table, it could encourage you to believe you actually know how to pick stocks that beat the market, and thus put you in danger of trusting real money to your stock picking judgment.
Short term market results are meaningless. And long term results come from many years of investing as much money as possible every year, and reinvesting dividends and interest.
One additional problem with these sites is worth mentioning, though it's not an insight that's original with me.
You Don't Lose Sleep in a Bear Market If Your Risk is Imaginary
So long as the money you risk is imaginary, seeing the market price of your portfolio go down can't prepare you for a real loss of market value.
I don't believe you should get upset, as long as your portfolio picks are still paying the dividends and interest you bought them for, but it's also true that's it's easier to read those words than to experience price downtrends in real life.
Your Good or Bad Luck Is Not Connected to Your Investing Skill
However, I believe the worst danger of these games is the encouraging of new investors to focus on short-term gains in market price.
If your portfolio's total goes up, you may believe you've "learned" how to invest, when you just had good luck.
If your portfolio's total goes down, you may believe you have not yet learned how to invest, when you just had bad luck.
Get Real Money Earning Real Income From Investing
Once you know the very basics of what stocks and bonds are, what you really need to spend your time doing is getting your personal finances in shape (paying off debt, and so on).
Then learn the basics of income investing.
Then open up a brokerage or a DRIP account and get started.
And continue to increase your income (while keeping your spending below your income) and investing as much as possible, and reinvesting your portfolio income, until you retire.
Of course you can have fun playing games too, but don't confuse them with real life, or even preparation for real life.
As an income investor, you want to focus on increasing your retirement portfolio's income. That's no game.
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