SVIC Facebook Q&A Discussion:
If you could tell your 20-year-old self one financial advice, what would it be?
Question for the group:
*This question was asked to the community last April 20, 2022:
I’m currently a junior at University with no student debt and reasonable financial support from my family. In the upcoming months, I will be interning at two companies and acquiring quite a bit of money.
Moreover, I also have a ~7k investment account in blue chips stocks like AAPL, MSFT, NVDA, and GOOG. I also have an emergency fund of ~2k. I want to ask for advice about what I can do best with this incoming fund:
Should I invest more, build up my emergency fund, or use it for my tuition? Thank you so much!
Community Answers:
Answer #1: Enrich your life
“Hi! Fellow person in their 20s here (although that’s coming to an end for me soon).
I’ve been at Google for five years and a total of seven years in the job market, so I have *some, very limited* authority when it comes to this. Unlike you, I did not have any help from my parents (I help them out now, which is actually quite rewarding). But here’s what I would do if I were in your shoes…
I’m on a 60% base, 40% bonus structure, and I plan all my expenses around my base. Therefore, 40% (which comes out to 1.5-2x that given steady good performance) is what I consider my “fun money”. Whenever I get “fun money” (I’ll put your internship pay into that bucket for the purpose of this answer), I come up with a % for that I’ll invest and a % that’ll be destined for a really special memory (usually, not a tangible good) that’ll enrich my life.
I’m 28 and currently well, well ahead of the curve in terms of retirement funding and own two properties who have soared in value, and I didn’t start maxing out 401k until I was 24 (I was waiting to make sure Uncle Sam wouldn’t send me back to my native country, which was potentially a mistake). Therefore, if there’s a special memory you want to make, save some of that % for making it happen now, while the stakes in your life are low (especially as you grow in your career, fully unplugging for a vacation for example becomes tougher and tougher depending on your field–not to even bring up the responsibilities of having a growing family and how that may change your ability to prioritize yourself).
The rest, I’d say invest in a low/no cost mutual fund. I’ve been investing with Wealthfront since I was 21 and absolutely love them. You get a certain $ managed for free, and it’ll be good to diversify a bit from your blue chip stock portfolio. For reference, I keep “very little” GOOG stock, myself, and retrospectively, am glad to have done so.
TL;DR: Enjoy yourself, this is a precious time of your life where “stakes are low”, and don’t buy into hustle culture to the point of harming your mental health and/or missing out on special memories along the way. You’re already ahead of the curve and will shake out just fine.” —SVIC Member
Answer #2: Make mistakes early with small amounts
“Congrats for thinking about this, it’s an important step. I’d say your first money should serve two purposes: Start your long-term investments, and also use it for learning. Allocate your funds into buckets (e.g low, medium, high risk), and decide on a % size for each bucket you’re comfortable with. You’re doing all the right stuff with emergency fund, retirement, VTI, etc. But also take a small portion and get your hands dirty with riskier stuff, crypto, etc. It’s education at this point that matters. Make mistakes early with small amounts, and treat it as an investment in your education and future decision making skills.” —SVIC Member
Answer #3: Start early, be broad
“Your life can be a snowball of progress. Think long term and how each step feeds the next. An enormous amount of wealth will be created through technological advance. Participate in it via the public markets, at least. Start early, be broad.” —SVIC Member
Answer #4: Read our article, “6 Financial Mistakes to Avoid in Your 20s”
“Great question! I need to think about this, but first I would tell my 20-year-old self to read Dan Pham’s excellent post: 6 Financial Mistakes to Avoid in Your 20s” —SVIC Member
Answer #5: Balance between saving the money and enjoying it
“If I knew that I’d have a good job lined up with no financial burdens, I’d save up first for a bit to enjoy the money. Take a trip knowing that when I come back I’d have the financial cushion. There’s a balance between saving the money and enjoying it.” —SVIC Member
Answer #6: Roth IRA; Low cost index fund
“ROTH IRA, max 401(k), put in a low cost index fund. Don’t look at it.” —SVIC Member
“Same exact thing except rather than an index fund, find a founder CEO 10x smarter than you and put all of your money into their ventures instead.” —SVIC Member
“THIS. It’s so simple, just put it on auto pilot at a young age and you’re golden. Only thing I would add is to put an aggressive percentage of your salary away from your first internship/job. Target 40-50% investing rate at a young age before you set up your standard of living to be too high.” —SVIC Member
“Intern $? Roth IRA for sure. You only get a certain bucket for that each calendar year, and your tax rate is so low as an intern, and that time-in-market for a Roth IRA is so long, that the savings there is massive. (You can take loans for your final tuition if needed and then pay them back in your 1st or 2nd year of full time employment.)” —SVIC Member
Answer #7: Advice I told my 11-year old daughter
“I would tell my 20-year-old self what I’ve told my 11-year old daughter…
1) Go to a good university, get good grades … life is a lot easier when you get good grades.
2) Get a good job when you graduate … put in 80-hours a week and learn from really good, smart experienced people. Don’t just go to startup because “you get more autonomy when you’re younger” or irrelevant benefits, like “remote work”. Get your lazy ass into the office every day. Dress properly. Show people respect. Assuming that you have those things, then
3) Just max out your 401-k with matching, max out your Roth IRA / IRA, and put it into equity index funds that mirror the S&P 500. If you just put $500 a month into an IRA for 30 years, you’ll be a millionaire at age 52 and you’re done.
4) Stay away from fixed income securities for the next 2 years (Fed is raising rates, you’ll just destroy value).
5) Never spend more than you earn.
6) Once you have some playing around money, try a few new things to learn (individual stocks, crypto) but that should never be your core strategy unless you are a professional trader.” —SVIC Member
What’s your advice to your 20-year-old self? How about to the younger generations of today?
Let us know your thoughts! Check out the discussion over at the SVIC Facebook Group. See you there!
