Anthony Wu | Head Editor
October 14th, 2022
“How many millionaires do you know who have become wealthy by putting money in a savings account? I rest my case.” — Robert G. Allen
Perhaps the best thing you could do for yourself at a young age is to invest. The passage of time is the single most valuable opportunity for growing wealth, as money compounds exponentially into extraordinary returns.
“The greatest risk of all is not taking one,” said Mellody Hobson, CEO of Ariel Investments. In fact, if you don’t invest, you’ve set yourself up for the worst financial outcome imaginable. A majority of Americans are unable to afford a $1000 emergency without going into debt, 61% live paycheck to paycheck, and 59% will have to keep working into retirement.
With most people never learning a thing about money from school, being in the minority of the financially literate is one of the biggest advantages you can have in your adult life.
For most Americans, the hope of financial freedom – to live your life without the burden of rent looming over your head – seems an impossible dream, but it’s always been achievable with a competent knowledge of money.
Let’s say Alfred invested $20,000 when he was 16 and never touched it again. By the age of 60, he’d have $1,476,232, more than enough to retire on. If, say, James took that same $20,000 but invested it when he was 32, he’d only have $308,913. Still 15x more than what he started with, but over a million dollars less than what could’ve been.
It doesn’t matter what you start with, be it fifty, a thousand, or ten thousand. A dollar invested at sixty stays $1. A dollar at thirty-two becomes $15. A dollar at sixteen becomes $73. Time is money. You better use it.
It begs the question: How does one begin investing? For a teenager, it involves your parents setting up a custodial account. Whether through a traditional brokerage like Charles Schwab or through an independent app such as Robinhood, there are a plethora of areas to start.
Though it may be an intimidating conversation to have, it’s one that if you go through with, you’ll have taken the first and most important step toward your future success. Today, the best way parents can set their children up to be adults – outside of sending them to school – is to help them learn how to manage their money.
When my parents opened a stock account for my 11th birthday, it was the beginning of the single greatest learning experience of my life. It set up my future in a way that today looks exceptionally hopeful, helped me develop a valuable new skill, and taught me that education is not something exclusive to school, but that runs through my entire life.
For those looking for the next step, I’ll end with a quick word of investing wisdom from Warren Buffet, legendary investor and the sixth richest man in the world.
With endless things to invest in, the best course of action is actually relatively simple. Every month, devote a portion of your income to an index fund, such as the S&P 500, and never sell.
Note: The $1,476,232 figure assumes a 10.27% annual return, the historical average for the S&P 500 since 1900.
You are right, Anthony! This is a great article for young people. Let’s hope some people follow your advice!