4 tips for buying stocks with 'play money'

Taking risks with play money
Taking risks with play money © HomeStudio/

Did your pulse pick up when the Dow Jones industrial average crossed 14,000? Could you barely contain your itchy investment finger when the market eclipsed 15,000?

Consider yourself fortunate. Unlike many, you're probably not living paycheck to paycheck but are instead focused on how your savings might ride the market moves to new highs.

You might be ready to earmark money that you can afford to lose and try your hand at playing in the market.

Taking risks with play money is a popular strategy. A survey of some 8,000 investors by Cerulli Associates and Phoenix Marketing International from August 2012 to June 2013 found that even though they had access to advice from professional sources like a financial planner or broker, 76 percent of respondents maintained a small account for experimenting with their own investment ideas, says Roger Stamper, analyst with Boston-based Cerulli Associates.

While you're fortunate to have savings, your urge to risk some of it when buying stocks could be a misfortune, says John Gugle, principal of Alpha Financial Advisors in Charlotte, N.C. He says that studies show that individuals tend to want to buy into the market during exciting upturns and sell during downturns, depressing earnings from what they could have been if they had followed a "boring" formula of building a diversified portfolio of index funds and then sticking with it.

Here's some advice on buying stocks on your own.

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