Kim: Save your riskiest bets for play-money portfolio

KimOver the past 2-1/2 years, I have preached “slow and steady wins the long-term investment race.” I have warned of the dangers of trying to time the market and chasing hot performance, both of which lead to self-inflicted financial damage that my friend Carl Richards refers to as the “behavior gap.” I have urged investors to let the miracle of compound interest work for them.

All the above require extreme patience and discipline and can take years or even decades to bear fruit. On an intellectual level, most investors “get it.” Unfortunately, this runs counter to human nature, which demands instant gratification.

It’s the same reason I order the 22-ounce, bone-in ribeye when I know the 8-ounce salmon would be much better for me. Trust me, I get it.

Last month, The Wall Street Journal published Liam Plevin’s “Investing for the Fun of It,” which discussed the merit of having a small “play money” portfolio with which to attempt to fulfill your fantasy of making a quick killing, much like the clever-talking baby in the E*Trade commercials.

The idea is to protect the nest egg that you need to meet your long-term financial goals by confining your urge to gamble to a much smaller account created for that purpose. In the unlikely event it works out, maybe you can buy that Ferrari you’ve always coveted. If it disintegrates, it doesn’t affect your retirement lifestyle.

Plevin cited steps “play money” investors should take to “keep their expectations realistic and their wagers within safe boundaries.”

• Understand your motives. If you’re trading stocks for the adrenaline rush and thrill of possibly hitting the jackpot, that kind of action can be found in any casino. If you find researching and developing investment theses intellectually stimulating, you’ll have the chance to unleash your inner CNBC guru.

• Prepare to lose. Successful investing is a difficult prospect, even for professionals who have amassed fantastic long-term records and devote 100 percent of their focus to the task. Just note that these are the folks you’re competing against. There’s an old poker truism: “If you’ve been in the game 30 minutes and you don’t know who the patsy is, you’re the patsy.”

• Set clear limits. A “play money” account should exist only if your nest egg is fully funded and it should never account for more than 5 percent of your assets. It’s strictly money you can live without. As Vanguard founder John Bogle said, “Enjoy the fun of gambling and the thrill of the chase, but not with your rent money and certainly not with college education funds for your children, nor your retirement nest egg.”

• Remember, it’s for fun. “Don’t take yourself too seriously. If you look in the mirror and think you see Warren Buffett grinning back, it could be a warning you’re about to do something foolish.”

While there’s no sure way to reach investment nirvana, having a disciplined, patient approach gives you your best chance for success. Still, I understand that the Sirens’ “you can get rich, quick” song holds powerful allure.

Unlike Odysseus, we don’t have sailors we can command to tie us to the mast to save us from wrecking our financial ships on the rocks. So perhaps having a “play money” portfolio is the next best thing.•


Kim is the chief operating officer and chief compliance officer for Kirr Marbach & Co. LLC, an investment adviser based in Columbus, Ind. He can be reached at (812) 376-9444 or

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