I was recently invited to give a financial presentation to a group of high school boys. I knew that I had to keep it simple, but I also wanted to impart some lasting wisdom. It went well. Except, there was not a single laugh.
It occurred to me afterwards, that I should have incorporated memes. For those of you who don’t know, a meme is a humorous image, video, piece of text etc., that is copied (often with slight variations) and spread rapidly by internet users. It is relevant to the kids. While I can’t go back in time and give that presentation again, I can share my thoughts here in the hopes that you, being internet users, can spread it, rapidly, perhaps to your kids or other parents.
SAVE NOW. SAVE OFTEN.
I told the boys that if they save at least 15% (ideally 20%) of their pre-tax income, starting now and forever more, they would be in solid financial shape. I told them that if they only retained one thing, this should be it.
INVESTING FEELS SCARY, BUT IT IS WORTH IT.
The S&P 500 returned 10.0% from 1926 – 2015. But it is a wild ride in the short term. The people who get to earn that 10% are the ones who can handle their fear and stay invested. That’s the deal.
YOUR MIND IS UNDERMINING YOUR INVESTMENTS.
We are all driven by primitive urges to avoid losses. That causes most investors to do the wrong thing at exactly the worst time. We are hard-wired to panic. An advisor can stand between you and a bad decision in an emotional moment.
INVESTING TAKES TIME & PATIENCE.
Over a 7 year period, the likelihood that investing in stocks will lose to other alternatives is exceptionally low*. With the perspective of long periods of time, the short term market crashes appear insignificant in your rear view mirror.
NO MATTER HOW MUCH YOU SPEND, YOU WANT TO SPEND MORE.
A financial planner can help you to identify how much you can afford to spend and how much you need to save. The fact that you still have cash in the bank doesn’t automatically mean you can afford to spend it.
COMPOUNDING RETURNS ARE AMAZING.
Albert Einstein was asked (or so the story goes), what the most powerful force in the universe is. He answered, “Compounding!” When your money makes money and that money grows, watch out. I told the boys about the Rule of 72. Divide 72 by your return and that is how long it takes for your money to double. With a 10% return, your money doubles in 7.2 years. They had 49 years (roughly 7 doublings) until age 65. $1 becomes $2, then $4, $8, $16, $32, $64 and finally $128. Wowzers!
Wait until you are 36 to start saving, boys, and your dollar is only going to be $16.
NEVER CARRY A CREDIT CARD BALANCE.
This requires no explanation. Never do it.
USE PASSIVE INVESTMENT STRATEGIES.
For the kids, my advice was stick to index funds and come see Abacus (or some other fee-only® fiduciary advisor who uses passively-inspired strategies) when they have $250,000 (even though we don’t have a minimum investment size).
*The S&P 500 took 4 years and 10 months to recover from the the Great Recession. It took 6 years and 8 months to recover from the Dot Com crash. Those were the longest recoveries since the Great Depression.
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