Dave Says – A High-Risk Proposition

Dear Dave,

My wife and I are on Baby Step 4 of your plan. Recently, we were offered the opportunity to take part in a three-day, hands-on stock trading class. The only problem is we don’t have the $5,000 registration fee at the moment. What do you think about us temporarily taking that amount from our emergency fund, then replacing it over a few months’ time? We would still have the minimum three months of expenses you recommend still there for emergencies even after taking the class.

Pete

Dear Pete,

I wouldn’t waste my money on the course. And I especially wouldn’t blow any of my emergency fund on something like that. Your emergency fund is for, repeat after me, emergencies only! In my mind, a short course on single stock investing is about as far from an actual emergency as you can get.

Now, I don’t know the exact course you’re talking about, but I do know quite a bit about the concept of buying and selling stocks—or day trading—if you want to call it that. Research shows over 90% of day traders lose money over time. And I can tell you something else, too. One hundred percent think they’ll never be the ones losing out. That includes people who take courses like the one you’re looking at.

I’ve seen no data points—none—showing that on a consistent, level basis across a broad population, that people who take courses like these make money and become wealthy as a result. Buying and selling single stocks is an ultra-high risk proposition. That’s why I don’t buy them. I know some people who buy and sell single stocks as a very small percentage of their financial world. And when I say “very small percentage,” I mean it’s like a hobby they dabble in once in a blue moon, with a very small amount of cash.

But my best advice, Pete, is to stay away from this kind of thing. Someone might make a little money playing around like this from time to time, but it’s nothing you should spend a lot of time on, or make a serious financial investment in. And it should never, ever be the main focus of an investing strategy.

— Dave