The other day I made the announcement in one of my favorite non-trading sites out there www.reddit.com (this is a link to the comments section) that I will be undertaking a challenge of a lifetime. I guess I was expecting some pretty positive feedback, since I was following a dream of mine to really put in the effort and test myself, I mean how many times have you read about business owners who got started taking out loans to get up an running?
Well the article wasn't as well received as I had thought, after more downvotes than upvotes (latest count 15 up, 20 down), and some concerned comments which I addressed - it was clear that this isn't a very popular move. I certainly appreciate the feedback I received, because getting other opinions is very valuable to keep a fresh perspective. I just took me by surprise...so I figured this would be a good time to write out the risks that I am taking, as I understand them.
Here are the risks I percieve to be taking by taking the plunge:
- Risk of total loss, or -$5,000.00
- Risk of delaying my retirement, having my 410k account go from 21k to 14k
- Risk that I will default on the loan, and have an early withdrawl 5k taxable event (plus 10% penalty) which amounts to roughly $3500 dollars in taxes, mind you this can only happen if I lose my job.
- Risk that the trading commissions will eat my returns alive, I am paying $8 dollars per trade, $16 for an round trade, thats .3% of my capital each trade.
- Risk that losses will make a recovery impossible without taking insane risks, again due to the size of the account.
I have read you should have an account worth roughly 25k to get started, because at this level I have to commit a large amount of my capital to each trade. I never said it would be easy! And to be honest, I planned on only being able to succeed after very careful trades, and some damn good luck. As for as my background, I have traded before in a personal account, was about net neutral as far as my returns went, plus some earlier stupid calls on financial stocks as they were falling apart. However, stupidity aside, I was always trading those accts knowing I needed to use the funds down the road for either a wedding or a house, so super tight stops and short day trades every so often. I have done quite a bit more homework since then, and I am back for my final exam with this project.
