Time for Practice

This is a guest post by Dave, who is also looking to retire no later than 45, but unlike Tim has no kids and doesn’t want any. Dave is from Ontario and is working towards his CGA certification.

As long as nothing changes between my wife’s and my finances, our house will have been paid off in around 3 years (taking 5 years total).  Until then, our financial plan is a fairly monotonous process, paying off as much as we can from each of our paycheques, while balancing this with having as much fun with the money left over.  Currently, I have a fairly robust savings/emergency fund, no debt and really nothing I can see in the near future that would make my personal finance life all that much more exciting.

I have chosen a very linear plan because it is more important to me to have no debt to reduce my monthly expenses, rather than it is to gain the benefit of 5 years of compounding.  Once our house is paid off, my wife and I will gain some sense of financial freedom, as half of our monthly fixed expenses will be eliminated – hopefully forever.  Once step 1 is complete (house repayment), it is our intention to invest until we have enough cash coming in annually to live off, which will hopefully be by the time we turn 45 (and if we’re lucky, sooner).

Until our house is paid off though, I have time to practice.  Time to get used to investigating stocks, paper-trading, to read books, blogs and other sources of information so that when the time comes that the majority of my income is going to investments, the task will not seem so daunting.  I am hoping that over the next few years I can possibly learn enough to eliminate a good percentage of “rookie” mistakes that I have read so much about on starting investors.

The problem I see is that three years is a very small window to learn, using Economic terms it is very much the short run – so I will still have a lot to learn in the ensuing (hopefully) 50+ years I’m going to be around and have to worry about my investments.  It’s a starting point however and I figure it’s better to be somewhat prepared rather than just diving in and investing 10% of our household’s retirement savings in the first year (if I want to retire at 45, I will have about 10 years to invest).

I realize that I will probably learn more in the first 6 months of “real” investing than I will in 3 years of studying, but at least I may not freak out when I start investing.

So, that’s my plan for the next few years – what would you do if you were me?

10 thoughts on “Time for Practice”

  1. Hi there,

    If it were me I’d open up a practice trading account, many of which can be found on the web for free.

    Get yourself $200,000 to “play” with risk free. Treat it as a real exercise, make the mistakes, learn from them, etc.


  2. To the poster above..

    Could I ask what shares you hold please? I have to say I’m very interested in Dividend share treading. Seems like it’s a mostly stable lower risk method of investing.

  3. Please keep us updating on your learning, I am in a very similar situation, and will also be going through those learning steps, so I’m very interested. We could compare notes as we walk the road to FI 🙂

  4. One thing I’ve learned is there is one thing practice accounts and books miss; learning to deal with emotions when real money is on the line. Even the best of investment decisions will be tested; staying rational is easy with a practice account but is a skill to be developed when investing for real. This especially true when investing for capital growth versus dividends. Starting with a low trading frequency strategy is a good idea.

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  6. Hi Dave, my name is Sharon Wu, a producer from CBC news The National. Im working on a story about early retirement for Canadians. I read your post, and wonder if I can get in touch with you. I can be reached at 416-205-7965 or email me: sharon.wu@cbc.ca Thanks and have a good day!:)

  7. BTW, for any of you who reads and writes comments on your early retirement plan, and have interest in talking to media,sharing experience , or raising concerns.. please feel free to contact me as well. My contacts showed above. Thanks!

  8. Hi Dave-I’ve never posted on this site before but your tale intrigued me. In many ways your post answers your own questions. At this time it appears you are entirely focused on becoming debt free. Primarily wiping out your mortgage. While there are valid arguments at this time as to whether one should rent or own their primary residence given the absurd amount of debt most are carrying on their principal residence along with artificially cheap money and the boomer influx about to hit the real estate markets across Canada over the next few years it would seem you are okay in that area. Not once did you call your house an ‘investment’. Good, it isn’t. It’s where you live and isn’t ‘worth’ anything until you sell it. Please avoid the lure of a HELOC as you become more financially comfortable;) Anyhow,you say you are in a place financially where you can pay it off in 3 years and seem to have an aversion to debt.
    Your linear plan while not exciting seems to be in your comfort zone. Therefore stay in it. Boring dividend paying stocks-I’m a fan of Canadian Bank preferreds; are worth taking a look at. Also specific REITs are worth doing some research on. Nope, not going to suggest any, do your own research and find the ones that make sense to you. You have time.
    As for the comments about setting up a ‘play account’ I agree with Glenn, pretend money is just that, pretend. If you lose 200000 of pretend money you still eat, lose 1/4 of that or perhaps less in real money and you may be in a spot of trouble plus you’ll be decidely depressed. If you have a yen to try out more involved riskier trading, take some real throwaway money-money that you literally could flush down the toilet and not have it impact your current dull but very sensible plan and do some trading. You’ll find it’s an entirely different animal and amazingly not that easy as many internet blogs etc. would have you believe;)
    For the record I’m a very very old man compared to well, probably anyone else who posts on this site. Just turned 49, have been self-employed since I was 19 and was entirely debt free at 36 and have stayed that way. Two of the best words I know pertaining to personal finances are ‘paid for’ and it seems you are well on your way to achieving that.

  9. I agree with the others – a practice account is akin to playing Risk or WoW vs. actually going to war. I would also bet that you’re even more risk averse than many just by virtue of your desire for stability evidenced by your focus on the guaranteed return of a mortgage.

    Sometimes I used to wonder why some people aimed for $1MM+ when they didn’t seem to need it based on their spending. Now with real money in the game and losing mid-5 figures over the course of a couple of months earlier this year, I see why they want that buffer.

    Having said that, I still think it’s a good idea to do what you’re planning to do. Won’t hurt anyway.

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