To succeed at extreme investing, you must have a burning desire
to master the rules and strategies of the game. This is essential
if you want to develop a trading system or skill set that will work
for you in the pursuit of extreme investing. Extreme investing
demands significant discipline—which means you must possess
Zen-like control while trading and adhere to strict risk-management
techniques. But the first step is to determine whether your
financial situation allows for this extreme adventure.
To be an extreme investor, you need extra capital—money
you can live without comfortably, both in terms of continuing
lifestyle and peace of mind. This strictly excludes retirement
money or the kids' college funds! Many investors start with
money that's simply idle, not already earmarked for a specific
purpose. Some investors divide their existing stock account into
two separate accounts: one for long-term investing, the other for
playing options and day trading.
The point is that money used for extreme investing must be extra
money, not money you need to live on, and not money you are
diverting from other vital accounts. If you have the slightest
doubt about whether your financial status will allow for any
extreme activity, you need to produce an overall financial
plan—a snapshot, if you will, of your financial
status—for you and your family:
- Look at your net worth. Take into consideration how long it
took you to get where you are and how far you are from achieving
your retirement goals. What must your net worth be for you to feel
secure in retirement? What's the difference between your net
worth and the cost of your future plans?
- Consider your current income and expense picture. If you pursue
extreme investing at any level, will your current income source be
affected?
- If you have extra money, should that money be safely invested
for future expenses that you've identified in your financial
plan? If you have extra capital but pending expenses, don't
risk that capital on extreme investing.
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If you still have doubts about whether you have the extra cash
to go to the extreme, talk to a financial consultant. He or she
will take a look at your net worth, your plans for the future and
other variables, and help you figure out what's left to play
with at the end of the day.
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