We asked finance industry professionals and investors what piece of stock investing advice they wished they had known sooner. By answering this question our contributors are essentially giving insights to Millennials investing now and future younger investors.
I hope the advice is useful and helps you maximize your money.
1. Get an Earlier Start on Planning for my Own Retirement
Timothy G. Wiedman, D.B.A., *PHR Emeritus* Associate Prof. of Management & Human Resources (Retired) Doane University
I just turned 67 years old, and I took early retirement eight months after turning 62. And while in academia, I earned my doctorate, a certification in ‘Financial Planning’ and later taught college courses on both ‘Personal Finance’ and ‘Retirement Planning.’
As a young man just entering the workforce straight out of high school (and with a very limited financial education), I put off starting to save for retirement and didn’t open my first IRA until I was almost 32 years old.
Further, during my 20s, I also had a history of putting a fair amount of my discretionary funds into depreciating assets like three different used European sports cars (all convertibles, of course, built by outfits such as Fiat, Porsche, and British Leyland). And as used cars, they all developed mechanical problems at one time or another that almost always required expensive imported parts to repair. I justified this poor money management by telling myself that I could always catch up at a later date on my long-term financial plans after establishing a more-solid career and seeing my income increase.
But later got put off again when I began taking week-long ski trips to major mountain resorts (six different times as I recall) and then one summer, I also decided to buy a small sailboat!
Rather than opening an IRA, I always was able to find better things to do with my money.
And I firmly believed that when it came to spending discretionary funds, a great many of my peers behaved just like me. So I wasn’t doing anything unusual. And after all, retirement was many decades away and there was plenty of time to start saving in the future!
But the earning power of compound interest is based on time, so an initial delay can have severe consequences. Thus, for young folks, opening a Roth IRA (Individual Retirement Account) as early as possible is vital, and it doesn’t require any particularly savvy investment knowledge.
Relatively safe, widely-diversified, low-cost stock index funds (offered by Fidelity, Charles Schwab, T. Rowe Price, Vanguard, and others) can mirror the behavior of the overall market and are an easy way to get started. For example, if a 23-year-old fresh out of college puts $3,000 per year into a Roth IRA that earns a 7.8% average annual return, forty-four years later at retirement, that $132,000 of invested funds (i.e., $3,000 per year times 44 years) will have grown to $1,009,275.
On the other hand, starting an identical Roth IRA twenty years later (and investing in the same index funds) will yield very different results. For example, putting $5,500 per
year into that same Roth IRA for twenty-four years still equals a total investment of $132,000 (i.e., $5,500 per year times 24 years). But at retirement, earning the same 7.8% average annual return, those funds will have only grown to $357,167. The delayed start will have cost that investor more than $652,000!
So, if I could travel back in time, I’d try my best to convince my ‘younger self’ to get an earlier start on planning for my own retirement!
2. Investing in The Stock Market is not as Difficult as The Media Makes You Believe
Todd Kunsman https://investedwallet.com/
The tip I wish I knew sooner, would be that investing in the stock market is not as challenging as the media and world make it seem. I started at 26, and wish I started earlier as I’ve missed out on a few years of gains and stacking money away for my future.
Since my high school never taught us basics and I didn’t go to college for economics (let alone have one class on it), I really only relied on the basic information my parents taught me. It was good financial advice like opening a credit card at 18, paying the balance on time, not overspending, signing up for your company 401k, etc.
But, I never had a formal education on making investments and the stock market. It also seemed really complicated and a way to lose money easily. So I avoided it and I know many others do too or sign up for their employers 401k, but have no understanding of it.
What I’ve learned is since it’s not required in schools (basic personal finance and investing should be), no one was going to hold my hand and show me the way. This meant learning on my own. Of course, there is TONS of information online, but I relied on book reviews and good recommendations.
I read a few books and some other investing blogs. And within less than a
year, I was making significant financial moves and managing my own investments, which I still do today. It’s also why I started Invested Wallet, to show other beginners that you can learn this stuff, but you have to dedicate some time to learn.
There are still more complicated areas of stock market investing, but there is a lot that is not overly challenging to understand. Had I come to that conclusion earlier, I could have been a few steps away from where I’m at. However, I do not dwell on it because I’m happy I figured it in my mid-twenties instead of even later in life.
3. Using A Financial Planner is Cheaper Than You Think
Amit Chopra CFP – Managing Partner, Forefront Wealth Planning and Asset Management
I am a Certified Financial Planner that helps primarily Gen X, Xennials and Millennials and I hear my biggest regret ever is all the time. Here are some I have both heard from clients and wish I had known myself
1. There is nothing more powerful than compounding interest.
Average market returns since 1926 have been 9%+ annually. Exposing your money to compounding gains as early as possible is the absolute number 1 key to long term financial success. All of the little money saving things people do (my mother stole ketchup packets) don’t make any real difference in their overall net worth come retirement. Exposing your money to compounding interest and gains for as long as possible leads to a significant impact on your account value at retirement age. You can have hundreds of thousands of dollars more than someone who saved more money for a longer period of time as long as you exposed your money to compounding gains for a longer time frame.
2. You don’t need to have a lot of money or money to invest to work with a Certified Financial Planner
One of the main things I hear when speaking to people about engaging my services is oh I don’t have enough money to have a financial guy. Unfortunately, wirehouses and traditional financial advisers have done a good job of clearly showing they only care about Ultra High Net Worth investors. I have created a subscription service for my young clients so they can get the help and guidance they need when they really need it.
4. Follow the Investments of Those You Admire
Joe Maginot – Investment Analyst at Spin-Off Insights. He has experience investing in small, mid, and large-capitalization companies in a wide variety of industries.
Look through the 13F filings of investors you admire. This will show you their holdings on a quarterly basis.
Why I wish I had known this.
It would have given me a list of companies that talented investors owned. I could have then taken this list and studied these companies to determine the characteristics these businesses exhibited in order to attract these talented investors.
Doing this exercise would have accelerated my learning and made me a better investor.
5. Look to Invest in Companies that Scare Their Competitors
When I look back over my thousands of investments and stock trades, two things stand out.
1 – Invest in a Property in a Great Location
I am not here to sell you the idea of owning your own home or apartment, but what I can say is this. There is huge leverage in owning your living space. It is the ultimate leveraged investment. For example, you get a mortgage with leverage of let’s say 10 to 1. This means you pay a downpayment of $40,000 and you get a loan of $400,000. You buy the property. Now let’s say that property increases in value by 5% per year. After year one, you will have made $20,000. That is half of your downpayment already. If you had invested the $40,000 downpayment in another investment that made 5%, you would have only made $2,000
2 – Invest in Companies that Scare Their Competitors
Over the years I have seen many companies that have such unique products or services that they literally have their competitors running scared. Microsoft and the launch of the PC with MS DOS and Windows 3, or Apple with the iPhone. More recently Netflix has the entire media industry on the ropes.
Apple, Microsoft, and Netflix have dominated their industries and made countless competitors bankrupt. You do not need to be an expert chart analyst to understand if a product is an industry disruptor. You need stock charts to time your investment. But if you are investing for the long-term, then simply choose great companies and hold the stock for years.
[Further Reading: Buy and Hold Investing is Still Cool]
There are some common themes in the feedback our contributors made.
- The need to really plan for retirement as early as possible highlighted by Timothy Wiedman noting an opportunity loss of $652,000.
- Todd Kunsman mentions that investing is not as difficult and one thinks initially.
- Amit Chopra mentions that Financial Planners are not as expensive as you think.
- Joe Maginot suggests that you can follow your favorite invests using their 13F filings
- Finally, I suggest buying the place you live in and keeping an eye out for companies who have their competitors running scared.
Do you have any great advice you wish you had given to the younger you? Leave a message in the comments below and we may publish them.