So I'm just at the end of my twenties (29 turning 30 next year :S) and now that I'm older and wiser about $$$ compared to my early twenties, there are DEFINTELY some investment decisions that I wish I had made if I could turn back the clock.
Investing when you are young has the advantage of TIME and the benefits of COMPOUNDING. I wouldn't say I was frivolous with money when I was younger - I was good at saving, was able to go traveling, and paid off $30k in student debts in 2 years (but that's a story for another time). However, if I was just a little more financial savvy and had healthy financial discipline and habits when I was in university or fresh out of college, I would be in a stronger financial position than I am now.
I wish I had the resources back then or the awareness that I should be doing something with my money, instead of just focusing on school, getting a job, and studying for my CPA while working (which is, to be fair, difficult in itself). Today, you get the benefit of these simple tips that will put you ahead of the game and tips I wish I had known in my early twenties.
Note: Before I can even start, I think it goes without saying that if you have any bad debt, such as credit card or personal loans with high interest rates, your priority should be paying that off IMMEDIATELY.
Investing in the Stock Market (ETFs)
Even with just $50 or $100 per month, I wish I had known to invest in Exchange Traded Funds (ETFs). Investing can be scary as it seems so complicated at first. The fundamentals of investing is that you are compensated for the risk you are taking. For example, equities (ie. stocks) may have higher returns than fixed income investments (ie. certificate of deposit), since it's considered more volatile. Therefore, investing in individual stocks are considered to be risky, since a drop in prices of that one stock can affect your whole portfolio. Unless you really know what you are doing and conduct your own due diligence of reviewing all the necessary information about that stock, you can consider yourself gambling when you invest in a stock on a whim.
ETFs, on the other hand, are a collection of individual stocks that offer instant diversification, so the fluctuations in prices as a whole are less volatile. One of the more well known ETFs of S&P 500, an index of 500 of the largest companies listed on stock exchanges in the United States, provided an average 10 year annual return of 13.91%. Imagine I had invested $1k at the age of 19 years old in my first year of uni, I would have $3.75k or 370% return (after expenses)!
Even Warren Buffet, the greatest investor of all time, bet against hedge funds that they couldn't beat the S&P 500 index, which he won! It's proven to be quite difficult to beat this index due to its diversified nature and stable group of large cap companies in the biggest economy in the world - the US. Of course, if I could go back in time and handpick the most profitable stocks to maximize gain, then that's another thing - I'm strictly talking about the easiest, most hands off, most diversified, and "least riskiest" basket of equities.
If you are in it for the long-haul the fluctuations from year to year smooth out. But if you are worried about the one-off recessions that send the whole stock market plummeting (ie. S&P 500 loss in 2008 was -38.49%), you can also further reduce your risk by having a balanced portfolio of equities (~60%) and fixed income (~40%), which would have even less fluctuations and reduced losses in times of recessions, but there is also less upside on good performing years. Refer to the following charts of Vanguard's (one of the biggest investment management companies) ETFs - clearly, you can see the average annual returns of the S&P 500 ETF trumping the Balanced index ETF.
If I was willing to take on more risk, I would have 100% invested in NASDAQ ETF over S&P 500 ETF, as you can see NASDAQ outperformed S&P 500 consistently since 2012.
Lastly, what I've learned while investing is that you can never (i) predict what might happen to a company or economy and (ii) time the market. That is why I found dollar-cost averaging to be the most effective, "hands off" method because it removes the detailed work of trying to time the market as well as the impact of emotional investing. You simply just making purchases at regular intervals, regardless of the ETF's price, which lowers the risk and effects of any single lump sum purchase by spreading the investment out over time.
So if I had an extra $100 lying around per month in my early twenties, I would have invested it in one of the biggest index's ETFs (S&P 500, Nasdaq, Dow Jones, High Dividend ETFs) as I can tolerate more risk at a young age with the mindset to invest in the long-run (ie. 5+ years) to smooth out any market volatilities.
Investing in Cryptocurrencies (Bitcoin? Ethereum?)
I still remember sitting in the lounge of my university's campus, when one of my friends in finance rushed over to me to talk about bitcoin. I believe this was 2011, and bitcoin was in its earliest stages and there was lot of speculation. Not knowing any better, I had pushed the conversation aside and went back to my classes.
Fast forward to 2020/2021, the pandemic had changed the way the world operates and accelerated a lot of the digital innovations. Cryptocurrency has grown massively and bitcoin had just about gone off the charts. Everyone may have considered this at one point - but if I had just invested $100 when bitcoin was $1 in 2011, then with prices peaking at around $60k per bitcoin in the past few weeks, it would be worth around $6M now...
Moving past that lost opportunity, I still see huge potential for cryptocurrencies out 5 to 10 years from now. Of course, no one can forsee the future and know how cryptocurrencies will play out, but it's a fact that the world is becoming more digitized. Just looking at this one trend and listening to experts like Balaji Srinivasan (Angel investor and entrepreneur, who was the former CTO of Coinbase) who has an eye for future trends and was able to make accurate market predictions in the past, I feel that cryptocurrencies will become more integrated in our economy in the future.
There are so many different emerging cryptocurrencies out there. Cryptocurrencies are volatile for sure and it's definitely not a safe investment for the short term. In the case of Bitcoin and Ethereum, they have seen huge gains recently and there has been lots of talk about the "bubble" that might pop. However, I believe out 5 to 10 years, the value of these cryptocurrencies will continue to grow.
Side note: The cryptocurrency market is quite volatile and there has been a big dip recently. I'm personally taking this opportunity to buy various small time and big time cryptocurrencies when the prices are lower by dollar cost averaging. This is just what I'm going to do, with the mindset that I don't have this money and mentally prepared for it to go down to zero. Please don't take this as financial advise! Do your own research and invest at your own risk~
So if I had an extra $50 to $100 in my early twenties, looking back, I would definitely invested in cryptocurrencies. Even today, I'm invested in the big cryptocurrencies and also looking into the smaller cryptocurrencies that have large potential upsides - so do your research!
Investing in Real Estate (Building Home Equity)
I bought my first home in time for my 28th birthday. While I had my own reasons for not purchasing earlier - I was traveling, I wanted to work in another country, I didn't have enough money, etc. - looking back, I wish I had pushed myself to make a home purchase, even if I wasn't able to put in the full 20% deposit to avoid mortgage loan insurance.
In the long-term, mortgage loan insurance (premiums paid if your deposit is less than 20% of the home price) is "cheaper" than the home appreciation you forgo and the additional rental expense you can save. Let me give you an example - an apartment costing around $400,000 in 2016 (when I was 24) has appreciated to $500,000 in 2021 (Vancouver is an expensive city!).
Say I only had $20,000 (5% deposit) instead of the full $80,000 (20% deposit) required to avoid mortgage loan insurance - the premium is $15,200 over the life of the mortgage of 25 years.
The monthly payments (at 2.5% interest rate over 25 years) would be around $1,770 per month (excluding other expenses like strata fee), of which $950 are principal payments and $820 are interest payments.
Now compare this to renting the exact same apartment for $1,600 (I'm telling you Vancouver is pricey!). I'm effectively paying $820 for the apartment (the principal of $950 I get back when I sell the home, assuming home prices have not dropped) vs. $1,600 in rent - I'm saving $780, almost half the rent!
Not only would I have benefited from the appreciation of the home of $100,000 from the 5 year time lag of buying the home, I would have also saved $46,800 ($780*12 months*5 years) over the 5 year time span!
I know it's not easy to save up for a down payment of a home. Maybe instead of paying off my student loans of $30k at 5% interest rate, I should have saved up for a deposit on a home (the return seem to be much greater than the interest expense of the student loans). So, if I were in my early twenties, I would have taken a bit more risk and purchased a home, as the numbers seem to make more sense in the long run.
Disclaimer: This Blog is for entertainment purposes only, and you should not construe any such information as investment or financial advice, as I am not a financial advisor. I recommend doing your own research and/or consulting with your own financial advisor.
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