If I could turn back time...
I love the movie Back to the Future, and wished I had the car to go back in time and slap myself. Once my 20 year old self recovers from the shock, I would give the young stud these 7 key financial advice.
1. Investing Requires Self-Savings not borrowed Money
It is important to understand that a successful investment would require consistent savings injected in a regular interval. Not a one-off lump sum of money. Not borrowing money or Loan. Setting aside money every month for investment is key and make a habit out of it. If you can only afford X when you are 20, the figure X should be growing as your income grows. By 31 you should have 2X contribution a month if your salary increases by 10% every year.
2. investment is your Early ticket to Retirement
End of the day you are investing early so you can retire early! When you have enough to retire in your lates 30s or even early 50s, you basically bought time to stop working in the rat race and re-focus on the things you love. The investment is a passive income which could work for you and cover your expenses year on year. So make sure your investment is not a splurge in Las Vegas or a Ferrari when you. Start with Stocks and Shares.
3. A great snowball effect with dividend reinvestment
Make sure all the dividends, profit earns are reinvested together with additional injection of capital every month/year. You may or may not have a pension with your current work place, make sure the investment portfolio is your Early Retirement 2.0. Keep your work pension as your primary retirement and investment portfolio as you Early Retirement port.
Snowball effect is wealth growth exponentially via compounding at later stages of your life. Warren Buffet became a multi-billionaire only after his 60s from his compounding investment growth.
4. Start with Index investing FIRST (up to USD$10k)
The reason why I say this is to establish some discipline. Make sure you become a boring investor first. This helps to build confidence with stable and slower growth. A lot of young new investors starts firing out to penny stocks and shares, leverage trading hoping to make 10k a day and retire by 25 and live on a beach. Before you take the risk, you need to sit back and understand the boring basic fundamentals first.
5. Take Risk up to 30% and not more!
Young investors love crypto, penny stocks, leverage trading to make it big in a short time. I see a lot of young investors making 20k-100k a day on twitter successfully. However we don’t hear about them losing the same amount the week after. So do not assume there is no risk by these fake social media news.
Yes, you have to take some risk but make sure you hover between 10–30%. The other 70% needs to be the boring investment of index and bluechip companies which pays dividends.
6. Diversify your investments after 30s
You need to look beyond stocks and go buy yourself a couple of properties for rental or flipping. Keeps things interesting too. Buy in areas which you think the early 20s or young graduates would rent. Make money from these wild spenders cause you were them before.
If you can identify good rental areas/location, these tenants will just pay the mortgage for you. Make sure you have a good deposit and mortgage rate to balance.
It could be investing in peer to peer lending to small business for monthly or quarterly dividends.
It could be investing in a franchise like Dominoes or Starbucks with a couple of friends your local area
7. Start a passion side job by 35 to generate more money.
You will be retiring early if all top 6 points are going well and figure out what to do after retirement. Not Netflix, shopping or video games all day and night. You need to keep your brain stimulated by reading and coming up with ideas on how to venture into new business. It could be writing kids novels, setting up a restaurant, setting up a school, producing music, tattoo parlour, professional videographer etc.
At 35, with experience and more knowledge, you can start to be your own boss.
Do something you love and generate income with it!