Hey Learners, and thank you for coming back!
I’m not sure about you, but the month of December always hurts my bank account! Christmas shopping, gatherings with friends and family and, obviously, loads and loads of holiday decor.
With the holiday season quickly coming to an end, I got to thinking about finances, budgeting, investing and how to be better about all of it.
When I got my first job out of college, I was immediately hit with the never-ending financial obligation of “the real world.” 401ks, student loan repayment, IRA accounts, taxes—filing single for the first time, the stock market, bonds, should I get into crypto now? Sound familiar?
These new words and responsibilities are intimidating! Not only because it is a new obligation, but because the vocabulary is entirely unfamiliar. Rarely, did someone ever sit down with me to explain finances, investing and preparing for the future. My dad would sit me down and tell me how to avoid credit card debt— “if you can’t spend cash on something, you don’t need it,” he’d say.
It would take me turning 21 and preparing for graduation to fully understand that his logic came from his own financial burdens during his 20s.
Now, more than ever, I know it is important for me to begin preparing and investing for the future, but where do I even start?
I asked New York Times best-selling author and fellow Bulletin writer, Nicole Lapin, her advice on investing. Lapin spends her time encouraging others to take control of their money, life and career through her books, ecourses, events and how-to videos. As she has been quoted saying, “whoever said money can’t buy you happiness, probably wasn’t good at managing it.”
Here’s Nicole Lapin’s advice to all of you!
I’ve said it before and I’ll say it again: your most important asset isn’t money, it’s not even Dogecoin, it’s time. The good news is that if you’re in your twenties, you’re rich in time—but you’re going to need to use it wisely.
Zoey is absolutely right—your twenties is the prime time to start getting your financial life together. But don’t take my word for it! I’ll show you. Let me walk you through three scenarios. The year is 2022, you’re 27, you have $1,000 and…
Scenario A: You decide to put your $1,000 into a savings account. You’re fully committed to keeping that money in savings until you retire, forty years from now. Typically, your money in a savings account grows at 0.01% interest (yes, that’s right, less than 1%). So how much will your initial $1,000 deposit grow over the course of 40 years? $4. Yep. After 40 years, you’ll have a whopping $1,004 in that savings account. Everyone’s different, but I’m thinking that it would be tricky to live out your best Betty White retired life on $1,004, right?
Scenario B: You decide you’re into the idea of the stock market, but you’re sure that you don’t need to think about it now. You wait thirty years—until you’re 57— and then decide you want to put that $1,000 in the stock market until you retire. Historically, the stock market has grown 8% year over year. If you take out your investment 10 years later, assuming that historical rate of return, you’ll have *drumroll please* $2,159. Definitely better than $1,004—more than double, in fact, and in one-quarter of the time!— but still, not enough for Miss Betty’s lifestyle.
So let’s take a look at Scenario C: You decide “What the hell!” and put that $1,000 into the stock market ASAP and don’t touch it until you retire. So, what will you see in 40 years when you clear the cobwebs from your brokerage account? That $1,000 will have grown to $21,725.
So, you tell me— which would you rather have: $1,004, $2,159 or $21,725? I’m guessing you want the 21k, right? It sounds like a trick question, but this is the choice you’re actually making when you decide to put off opening that brokerage account.
So, now that we’ve clarified that investing is the bee’s knees, let’s dig into Zoey’s question of “where do I start?”
When it comes to investing, there are really three investing vehicles you should know about; I’ll list them out in order of safest to riskiest. They are: bonds, stocks and cryptocurrency.
A mix of those first two investment vehicles, stocks and bonds, are key to a successful portfolio. If you have stocks and the market is up, you’ll be raking in the gains. When the market is down, slow and steady bonds save the day. It’s widely known in the investment world that variety is key when it comes to investing, and that means having a mix of investment vehicles under your belt (maybe even crypto, but I’ll get to that in a second).
Want to know the biggest tip for investing in your twenties? Ready? Here it is: act your age.
No, I’m not being patronizing here, nor am I quoting the Blink182 song. I mean that your age should be a factor when you’re mapping out your investing strategy. Typically, the rule of thumb is to make your age a percentage out of 100 and then have that percentage be the amount of your portfolio that is invested in bonds. The remaining percentage should be invested in stocks.
For example, if you’re 25 years old, I’d recommend that you commit 25% of your portfolio to bonds and 75% to stocks. When you’re 60, I’d recommend putting 60% of your portfolio in bonds and 40% in stocks. The rationale here is that stocks are riskier than bonds, but offer a higher potential payout. If you’re younger, you have a longer runway to correct if you, well, fuck up. If you’re older, mistakes matter more. It’s one of the joys of adulting. Yay. And PS— If you don’t know which stocks to pick, click here to learn about my suggestion.
If you’re interested in investing in crypto, here’s my two cents. Crypto is extremely volatile. For every story of someone making it big, there’s another story about someone losing it all. My advice around crypto is that you shouldn’t invest any more than you’re willing to lose; typically, I advise people to avoid putting more than 1% of their net worth in crypto. Again, if you’re in your twenties, you have more time to make up for financial losses, but whether you can stomach a whole lot of risk is up to you.
If you’re new to this world of investing, I know this all may feel daunting. I remember when I first dipped my toe into the investing pool (which felt more like a nosedive than a dip), I certainly felt intimidated. But I’ll let you in on a little secret: the most common regret I hear from investors isn’t that they put too much money into the wrong thing, or too little in the right thing— the regret I hear most often is that investors wish they started investing earlier. So, what are you waiting for?
Thank you all for taking the time to read. As always, if you have further questions, comments or pieces of advice on investing–please leave them in the comments below! You can subscribe to The Learning Curve for FREE here!