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Hindsight is always 20/20. In sports, investing, love, and many other areas of our lives, it’s easy to look back with regret at certain decisions. While I expect I still have many years of investing ahead of me, I have gained a few dog lessons and investing lessons over the past 15 years since I bought my first stock. Here are five investment tips I would give my 22-year-old self to put me on the path to better investing success.
The short version
- It’s important to use tax-advantaged accounts as much as possible.
- Don’t be so afraid of potential losses when you have decades before retirement.
- Expand your investments beyond the stock market.
5 investment tips I would give my 22-year-old self
One of my favorite parts of the “Back to the Future” The series is when the villain Biff Tannen steals the time machine and goes back in time with a sports almanac. He hands her the book and tells his teenage self to use it for sports betting, giving him an advantage that makes him a wealthy tycoon.
I hope I’ll never be a supervillain, but I’ve dreamed of telling myself stock market secrets again that would give me enough money for a yacht with a helipad. Until I get my hands on a time machine, the best I can do is share with others the advice I wish I could give my younger self.
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1. Maximize your Roth IRA investments each year
The Roth IRA is one of the best investment accounts available, especially for investors in their 20s and 30s with decades before retirement. The amount you can contribute to this type of account is limited by IRS regulations and tends to increase periodically. Because of favorable after-tax treatment, investments in a Roth IRA grow tax-free when held for qualified withdrawals during retirement.
For 2022, the IRS allows you to invest up to $6,000 a year (or $7,000 if you’re 50 or older), though limits may apply based on your income. I’ve peaked for years, but started later than I would have liked.
Read more >> How to invest in a Roth IRA
2. Review the employer match on your 401(k)
At an early job, my employer would match 100% of my 401(k) contribution up to 3% of my salary. Later, I worked somewhere that offered a 50% match for contributions up to 6% of my salary. Others offered better and worse variations, and I always followed personal finance advice to make the most of my business match.
The problem is that I treated the match as a limit. I didn’t get beyond my equality with the employer until years into my career. 401(k) accounts may require some fees and limit your investment options, but the automated features and tax advantages make it worth going over the employer match in many cases.
Take advantage of your work>>How do employee stock options work?
3. Take a little more investment risk
Warren Buffett is my investing hero. I have always taken his quotes and advice on investing very well. This includes their investment rules: “Rule Number One: Never Lose Money. Rule Number Two: Never Forget Rule Number One.
It’s like Fight Club rules, but for your finances.
Over the years, I focused primarily on my one-time equity investments in top-tier companies with long track records. But this meant that I missed out on some exciting growth stocks that I noticed before the stock increased in value because I was afraid of losses. These include Netflix and an early investment in LinkedIn that I sold for a profit but should have held on longer.
Lesson learned: It’s okay to hold risky stocks and IPOs, especially if you have a long time before retirement.
Related>> How to determine your risk tolerance
4. Buy more Crypto early and HODL
I was lucky enough to learn about cryptocurrency very early. Bitcoin emerged in 2009 and I received my first slice in 2015. I made my first purchase at $228.91 per BTC. At the time of writing, a single BTC is worth around $20,000, down from a high of around $70,000. I made a profit on this first Bitcoin purchase, but I wish I had bought more and held off on selling at the top.
Even if I hadn’t sold, Bitcoin is worth 87 times more today than when I first bought it. That would be a pretty incredible return in seven years. Again, I didn’t put too much into crypto early on because I was risk averse and didn’t understand the potential of the digital currency revolution that was coming.
Today, the world of cryptocurrency is more questionable. I believe the industry will survive and some major coins will become successful decentralized businesses. But for now, it’s still wise to avoid investing more than you can afford to lose in crypto.
5. Learn how to invest in real estate as soon as possible
I’ve been fortunate to be able to meet many millionaires and even a few billionaires and ask them questions about their businesses and finances. A common thread I noticed among those with self-made wealth is real estate. Only a few can land high-powered jobs with seven-figure salaries. But almost anyone with good credit and a down payment can become a homeowner and make money in real estate.
In the stock market, returns come from appreciation (share price increase) and dividends. Real estate offers similar benefits through appreciation and monthly cash flow from rental payments. I “house hacked” my first apartment, which I bought about 10 years ago.
Home piracy means living in a house while renting out part of it to someone else. In my case, I had a two-bedroom house and split the costs with a roommate. I made a ton of money on that apartment and now I wish I had done a better job learning the ins and outs of real estate investing right out of college instead of a few years later.
Should you do it? Pros and Cons of Real Estate Investing: A Complete Overview
The takeaway: Do your best and stay focused on the future
There is no perfect investment strategy. Some investments will go up and you will probably pick some losers. Take both as lessons on what you can do better in the future.
There’s no reason to dwell on past failures, but there’s always a reason to work harder to understand your investment portfolio and options for the future. With this approach, you’ll put yourself in the best position for long-term investment success.
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