Posted by Mike Smith :: January 7, 2009 @ 6:34 am

It’s said that hindsight is 20/20, so why not give yourself the benefit of investment experience before you commit any cash. By using various tools or managing investments on paper, you can test investment strategies without having mistakes cost you any more than the time it took to make them.

For many types of investments, mock portfolios are available. A mock stock portfolio would allow you to practice buying and selling stocks using pretend money and real data from the stock market. I like to hone my skills by participating in mock portfolio competitions such as the CNBC Million Dollar Portfolio Challenge. You can think of such competitions as the fantasy football leagues of the stock market.

While automated tools are helpful, they are certainly not necessary. Nearly any investment can be monitored on paper or your computer. You simply record the price when you plan to buy and again when you plan to sell, if applicable. Remember to consider commission costs as well. For liquid markets, you can use a real-time price when you choose to buy or sell, or you can simply go with the closing price for the day.

Practicing investments is by no means limited to the stock market. Investors considering the purchase of notes on Lending Club can choose those that meet their criteria and then monitor performance until they are confident with the results. Past results of any investment do not indicate the potential of future success, but learning which selection criteria have met your goals in the past may help you to choose suitable investments for the future.

New investors are likely to make a few mistakes along the way. By practicing with any type of investment before you commit cash, you can learn from your mistakes without the accompanying monetary loss.

Have you ever used a mock portfolio before making an investment?