I Made This Investing Mistake Once, and I'm Not Going to Make It Again

There are certain mistakes I made in my 20s that I’m not proud of. Not only did I date some pretty questionable humans, but I also made some financial choices that weren’t really excellent.

For one thing, I waited a couple of years to start funding a retirement account when I could’ve contributed to one a bit sooner. Granted, part of that was to focus on my emergency fund, which I don’t regret, but part of it was stubbornness on my part that I didn’t need to part with cash at 22 when retirement was decades away.

Another mistake I made in my 20s was putting a big chunk of money into bonds. It seemed like a good idea at the time, but it was honestly one of the biggest financial blunders I’ve ever made.

Read more: unlock best-in-class perks with one of these brokerage accounts

When playing it too safe comes back to haunt you

For about a 10-year stretch, I had a good $20,000 invested in bonds. And the reason I chose bonds when I did was that I didn’t know a ton about the stock market and was essentially afraid of it. I figured that with bonds, I could enjoy a guaranteed, safer return and minimize my risk.

The flaw in that plan, though, was that staying out of the stock market severely limited the extent to which my money was able to grow. See, over the past 50 years, the stock market has averaged an annual return of 10%. But that 10% accounts for years of really solid growth in the market as well as years of pretty steep losses.

What this tells us is that if you invest in stocks over a long period, you’re likely to see a solid return on your money. You may not see the returns you want year to year, or every year, but over time, you’re likely to get rewarded.

What I did was put my money into bonds paying 5%. So over a 10-year period, that took my $20,000 investment up to about $32,500. Had I opted for stocks and scored a 10% annual return on my money during that time, I would’ve been sitting on more like $52,000.

Thankfully, I realized my error in my 30s and corrected it. I started building a stock portfolio in a brokerage account and have maintained a mix of investments in that account since.

But here’s the problem. Even though I set myself up for higher returns in my 30s, I was starting with less money at that point than what I would’ve had with a stock-heavy portfolio to begin with.

Case in point: If you invest $32,500 for 30 years at an average annual 10% return, you stand to end up with about $567,000. If you invest $52,000 for 30 years at an average annual 10% return, you stand to end up with more like $907,000. That’s a $340,000 difference.

Invest in stocks from the start

I can’t go back in time and force my 20-something self to go heavy on stocks. But if you’re in your 20s and are first starting to invest, take a lesson from me and consider going heavy on stocks when you’re young and have the option to take on some risk.

And if you’re afraid of risk, consider that your fear might cost you hundreds of thousands of dollars in lost gains over time. That’s something you might end up kicking yourself for later.

Alert: our top-rated cash back card now has 0% intro APR until 2025

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a lengthy 0% intro APR period, a cash back rate of up to 5%, and all somehow for no annual fee! Click here to read our full review for free and apply in just 2 minutes.

Source link

About The Author

Scroll to Top