Money Rehab with Nicole Lapin - Encore: Tips for the Twenty-Something Investor

Episode Date: May 20, 2023

Originally aired 1/20/22 Nicole’s said it before and she’s here to say it again: your most important asset isn’t money, it’s not even Dogecoin, it’s time. The good news is that if you’re in your twenties, you’re rich in time—but you’re going to need to use it wisely. Today’s episode, you’ll learn how to do exactly that.

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money is working as hard as you do. So why overcomplicate your money? Keep it simple with Bank of America, your one-stop shop for everything you need today and the goals you're working toward tomorrow. To get started, visit bofa.com slash newprosmedia. That's b-o-f-a dot com slash n-e-w pros p-r-o-s media. bfa.com slash newprosmedia. Hey guys, are you ready for some money rehab? Wall Street has been completely upended by an unlikely player, GameStop. And should I have a 401k? You don't do it? No, I never do it. You think the whole world revolves around you and your money.

Well, it doesn't. Charge for wasting our time. I will take a check. Like an old school check. You recognize her from anchoring on CNN, CNBC, and Bloomberg. The only financial expert you don't need a dictionary to understand. Nicole Lappin. I've said it before and I'll say it again.

Your most important asset isn't money. It isn't even Dogecoin. It's time. The good news is that if you're in your 20s, you're rich in time, but you're going to need to use it wisely. And that's exactly what money rehabber Phoebe wants to make sure she does right away. Here she is. Hey, Nicole, my name is Phoebe. I'm 27 years old and live in Austin. I know that I should be preparing for the future and I want investing to be a part of that, but I'm not really sure how to even start. I've never invested in the market,

but I think now is as good of a time as any to dive in. Phoebe, you're absolutely right. Your 20s is the prime time to start getting your financial shiz together. But don't take my word for it. I'll show you. Let me walk you through three scenarios. The year is 2020. You're 27 and have a thousand bucks. And scenario A, you decide to put your thousand dollars into a savings account. You're fully committed to keeping that money in said savings account until you retire 40 years from now. Typically in a savings account, your money grows at 0.01% interest. Yes, that's right, less than 1%. So how much will your initial $1,000 deposit grow over the course of 40 years? $4. After 40 years, you'll have a whopping $1,004 in that savings account. Everyone's different, but I'm just thinking it's probably

going to be a little tricky to live out your best retired life on $1,004. Am I right? Scenario B. You decide that you're into the idea of the stock market, but you're sure that you don't need to think about it now. You wait 30 years until you're 57, and then you decide that you want to put that $1,000 in the stock market until you retire at 67. Historically, the stock market has grown 8% year over year. If you take out your investment 10 years later, assuming that historical rate of return, you'll have, drum roll please, Mike, a little over $2,100. Definitely better than $1,004. More than double that, in fact, and in a quarter of the time, but still not exactly enough to live a luxe retirement

lifestyle. So let's take a look at scenario C. You decide, what the hell? I'll put that $1,000 in the stock market today and I won't touch it until I retire. So what will you see in 40 years when you clear the cobwebs from your brokerage account? That $1,000 has grown to just about $22,000. So you tell me, would you rather have $1,004, $2,100, or $22,000? I'm guessing you want the 22K, right? It sounds like a trick question, but this is the choice you're actually making when you decide to put off opening a brokerage account. And remember, these examples were just based on a one-time deposit at 27. You can imagine how much sweeter these numbers would look if you deposited $1,000 every year or $1,000 every month.

So now that we've clarified that investing is indeed the bee's knees, let's dig into Phoebe's question of where do I start? When it comes to investing, there are really three investing vehicles you should know about. I'll list them out in order of safest to riskiest. They are bonds, stocks, and cryptocurrency. A mix of those first two investment vehicles, stocks and bonds, are key to a successful portfolio. If you have stocks and the market is up, you'll be ranking in the gains. When the market is down, slow and steady bonds save the day. Next week, we'll dig into bonds. But for now, you should know that it's widely agreed upon in the investing world that variety is key when it comes to investing. And that means having a mix

of investment vehicles under your belt, maybe even a little crypto, but I'll get to that in a second. So want to know the biggest tip for investing in your 20s? Ready? Here it is. Act your age. No, I'm not being patronizing here. I wouldn't do that, nor am I quoting the Blink-182 song. I mean that your age should be a factor when you're mapping out your investment strategy. Typically, the rule of thumb is to think of your age as a percentage out of 100 and then have that percentage be the amount in your portfolio that's invested in bonds. The remaining percentage should be invested in stocks. So for example, if you're 25 years old, I'd recommend that you commit 25% of your portfolio to bonds and then the rest 75% to stocks.

When you're 60, I'd recommend putting 60% of your portfolio in bonds and 40% in stocks. The rationale here is that stocks are riskier than bonds. If you're younger, you have a longer runway to correct if you, well, fuck up. If you're older, mistakes matter more. It's one of the many joys of adulting. Yay! If you're new to my financial philosophy, here's my two cents on crypto. Crypto is extremely volatile. For every story of someone making it big, there's another story about someone losing it all. My advice around crypto is that you shouldn't invest any more than you're willing to lose. Typically, I advise people to avoid putting more than 1% of their net worth in crypto. Again, if you're in your 20s, you have more time to make up

for financial losses. But whether you can stomach a whole lot of risk is up to you now. For today's tip, you can take straight to the bank. If you're new to this whole world of investing, I know it can feel so daunting. I remember when I first dipped my toe into the investing pool, which felt more like a nosedive than an actual little dip. I certainly felt intimidated, but I'll let you in on a little secret. The most common regret I hear from other investors isn't that they put too much money into the wrong thing or too little into the right thing. The regret I hear most often is that investors wish they started investing earlier.

I'm glad I didn't invest earlier, said no one ever. So what are you waiting for? Let's invest in your future. Money Rehab is a production of iHeartRadio. I'm your host, Nicole Lappin. Our producers are Morgan Lavoie and Mike Coscarelli. Executive producers are Nikki Etor and Will Pearson. Our mascots are Penny and Mimsy. Huge thanks to OG Money Rehab team Michelle Lanz for her development work, Catherine Law for her production and writing magic, and Brandon Dickert for his editing, engineering, and sound design. And as always, thanks to you for finally investing in yourself

so that you can get it together and get it all.