Hey! I’m Mike (you know that already?). I’m 36, turning 37 next month. This means that I was only 27 when the 2008 market crash happened and that I didn’t even have a single dollar invested in the market to watch it drop during the tech bubble or the World Trade Center catastrophe of 2001 (Sigh).
All this time, you have been reading my thoughts about the stock market and you were reading ramblings from a kid in the “adult investing world”!
Does Age Matter When Investing?
Last week, I explained why I will keep a 100% stock portfolio forever. Some investors mentioned that I was “too young” to know what it is like investing. They were mostly referring to the fact that I didn’t lose much money in the 2008 crisis due to my young age and that it was the only time where I see my portfolio down. In other words; I’m too young and I haven’t been investing long enough to tell people what they should do with their money.
Just to make something clear, I’m not advising anyone as this is a blog where I share my thoughts, period.
After reading a few comments in regard to my age, I started wondering about what makes a good investor… is it age or experience. Is it academic studies or someone’s investing returns? Let’s explore this together and find out if age is really a factor. But first, let’s define what a good investor is.
What is a good investor?
In my opinion, a good investor is one that has an investing strategy (or even better a full investing plan) written down. Investing is all about using your money now to have more money later. What better way to achieve this goal then by having a plan?
One must know how much to invest and how to proceed with his/her money. The plan is like an itinerary to get somewhere. It is possible that you don’t follow the exact path you have chosen at first, but without it, you’ll eventually feel lost.
A plan that works
I’m sure I can ask my 6-year old to draw a plan on a map to get to Costa Rica. The problem is that his itinerary might include crossing the ocean with my car or climbing up mountains. Therefore, a good investor is one with a plan that works. If you want your plan to work you must know what you are taking about.
Therefore, a good investor is one with sufficient knowledge to invest in the first place. There are many ways to acquire this knowledge.
Financial basics could be learned at school (like a bachelor’s degree in finance), by obtaining a professional title (a CFA, an accounting title, a CFP or a trading license), by reading books and blogs (like this one!), or by attending investing conferences, etc.
In other words, if you are serious about investing, you will be serious enough to enroll in some kind of training to learn what really matters when investing.
But is knowing enough, enough to be successful?
I think the worst transactions are made when emotions are involved. This is not only when you invest, but for all kinds of transactions. If you are super excited to buy a new car and you “fall in love” with a red Mustang, chances are the salesman will be able to jump his commission with you.
Emotional biases are well known and documented in the investing world. Even a professional portfolio manager will eventually trade thinking their job is on the line during a market crash. Therefore, if you want to be a successful investor, you must work very hard in putting your emotions aside when you are in front of your computer screen.
Would age help?
Would age help you reaching those requirements? Probably more experience will help to validate your plan and managing your emotions. If you keep studying and learning year after year, age would definitely make a difference going forward.
However, once you have reached 25-30, you can definitely be a great investor and manage a solid portfolio without too many problems.
Don’t believe me?
Just a refresher: Warren Buffet hit $1M net worth at the age of 30 and reached $1B at 56. He was a pretty young fella and was still a very smart investor.
So far, I think I’ve been able to highlight three very important components that each successful investor must have:
#1 – a plan / strategy
#2 – knowledge
#3 – a rational approach