While browsing various personal finance blogs, I’ve noticed one thing: no one talks about their investment strategy. I mean sure, everyone talks about saving, building that emergency fund and budgeting so that you can invest… but invest in what exactly? And how?
Over the next few weeks, I will be answering just that.
Lots of bloggers are skeptical about sharing their investment strategy, as what works for them may not work for you. Couple that with the fact that we are all just giving an opinion and are in no way licensed to give qualified advice and you get pretty much nothing concrete. I feel like this may also be a good time to put in a little disclaimer: I am also not a licensed financial planner, so please do take everything in this blog as general advice and consider if it may be right for you. If in doubt, always talk to a professional.
Okay, now that the legal stuff is out of the way, let’s talk money.
Will I be sharing the first part of my investment strategy with you today? You bet!
Do I think you should follow it? Absolutely not (see disclaimer). What I do think you should do is take the ideas in this post and really think about whether they may be useful to your situation.
As you all know, being in your 20s, in college, or both, usually means one thing: lack of money. With my 21st birthday right around the corner and being a broke college student, I am also short on cash. However, if a daunting semester of Economics 101 has taught me anything, it is that no matter how little money you have, you have to start somewhere.
Compound interest dictates that if you want to stop being broke today and become rich tomorrow (see what I did there?), you must invest young. I tell this to everyone I meet.
For example, say you invest $500 dollars today into the stock market. Assuming Terminators don’t enslave us all by the end of the century, let’s imply that your investment will average a return of about 8% per year. Let’s also assume that you are 20 years old today and that you don’t plan to touch your investment until you retire at the rosy age of 65.
Over the next 45 year, your original $500 investment will turn into a whopping $15,960, making you a profit of $15,460.
But let’s say you decide to wait a while.
You’re young and you don’t have much money right now. You decide to wait until you have a stable job and a stream of income that actually enables you to live a struggle-free life (touché my friend, touché). Your 30th birthday rolls around and you decide you’re finally going to take the plunge and invest that $500 into the market. By the time you retire, your investment will be worth $7,393. That’s a profit of $6,893.
Waiting 10 years has cost you exactly $8,567.
Now, image what that potential loss would be if you invested more than $500 originally.
Given the same circumstances, if you had invested $10,000 today, by the time you retired your investment would be worth $319,204. Wait another 10 years to make the same investment and you will have approximately $147,853 by the time you retire.
That’s a loss of $171,351. Now that is a significant difference.
Compound interest can make the difference between you retiring comfortably or having struggle. I know, you are young, struggling and probably don’t have a lot of money to spare. Trust me, neither do I. But if we both want to get ahead of the pack and ensure that we eventually get the things we strive for, we have to start now.
A beautiful garden was once just a single seed. Just like this, a dollar invested today will grow into more dollars tomorrow.
It doesn’t matter how much you have. I also started with as little as $500 and grew form there. What does matter is that you use your number one ally right now, which is time. You’re young and can take full advantage of compound interest, so why not start today?
The first part of my investment strategy dictates that you have to start early, especially if you are in college. Use the fact that you have time on your side and build that compound interest. Also, don’t touch your investment– that is what your emergency fund is for!
I hope I have given you some food for thought. Next week we will go into the second part of my investment strategy and dive into what I actually invest in. Hint: It is not Bitcoin.
Let me know in the comments below one thing you wish you would’ve invested in earlier.
Remember, being broke is temporary. Being rich is a journey.