As a young person who thinks and talks a lot about investing, I have realized that most advice about investing isn’t suitable for young people.
While we are busy looking for money to invest in assets, we forget that we are the most valuable asset class. We forget that investing in ourselves is the best investment we could ever make.
I have come to realize that much talk about investing ignores the assets that young people have in abundance- time and energy. They instead focus on the one thing that young people do not have much of it- money.
Moreover, they only talk about the asset classes that can yield monetary returns from no other resource other than money. They do not talk about other important asset classes that see higher returns than investing in traditional or customary assets and that do not need capital in the form of money.
How To Beat The Market
To start this off, I will pick a discussion by Nat Eliason that he featured in his newsletter episode titled, How To Beat The Market.
In the episode, Nat argues that the fact that it is hard to beat the market, investing in index funds rather than picking individual stocks isn’t the solution to everyone’s inability to beat the market.
He argues that investing in your earning potential and time will often beat the market, especially if you do not have a huge portfolio.
“I haven’t done the precise math on this, but I’d argue that until you’re making mid six figures, it’s probably a better ROI to spend extra cash on increasing the value of your time than on index funds.
That could be skilling to a more valuable profession, learning a valuable freelancing skill, starting a business, whatever it is, on a 5-10 year timeline you’ll probably do much better than you would if you put even 20% of an $80,000 salary into index funds.”
It makes little difference for someone in the low-income bracket if you invest your money in stocks or index funds. It won’t matter that much as you only have little money to invest. And hence the returns will also be small.
For such a person, what matters most is how he can climb the wealth ladder, from a low-income bracket to a middle or high-income bracket. And the only way they can do that isn’t investing in stocks or index funds. It’s by increasing the value of their time. This could be skilling to a more valuable profession, learning a high-income skill or starting a business.
Asset Classes That Young People Should Focus On
1. Invest in Your Skill Sets
Almost all financial problems can be solved by one solution, to increase your income. This is because most people are in the low-income bracket. And saving money when you have a high income is much easier than having a low income.
It then goes without saying that for anyone in the low-income bracket, investing in the typical assets shouldn’t make much sense for you. Instead, you should be investing more of your resources, money, time and energy into learning a high-income skill, advancing your experience or running a business. You should be investing much of your resources to increase your income. That’s the most sensible investment you can make.
2. Invest in Knowledge
If there are two people who value a good reading culture, it has to be Warren Buffett and Charlie Munger.
On his part, Charlie Munger says,
“In my whole life, I have known no wise person who didn’t read all the time- none – zero.
You’d be amazed at how much Warren reads – and at how much I read. My children laugh at me. They think I’m a book with a couple of legs sticking out.”
As if that is not enough, the two men Warren and Charlie hired to replace them, who are believed to have influenced the two to invest in Apple, were picked because of their reading cultures.
In a 2017 interview with Yahoo, Buffett said he valued the hires for “ability of character.” Another essential quality was a big reading appetite. Buffett said that Combs and Weschler were the “only two guys we could find that read as much as we did.”
Why is Reading So Important?
The reading of good books dramatically changes your life. It opens your mind to new ideas and perspectives about life.
James Clear wrote,
“Reading is like a software update for your brain. Whenever you learn a new concept or idea, the ‘software’ improves.
You download new features and fix old bugs.”
Reading is one of the investments that young people should make, as the knowledge from those books will help them make decisions and other facets of life for the longest time.
3. Investing in Good Health
If you look at how people spend money on health over their lifetime, you will realize that most people spend very little money when they are young and spend most of it when they are old. This is when most people fight heart issues, cancerous tissues, problems with joints and other old age diseases.
While most of these problems can be avoided by investing in good health from a young age, most people are not aware of this. Hence, they invest their money in typical assets as they do not understand that good health is also an asset class they should also invest in.
In his book, Die With Zero, Bill Perkins wrote,
“The ability to extract enjoyment from your wealth declines with age. When you are young, you have fewer responsibilities and better health to enjoy what life offers.
One thing that prevents people from enjoying life experiences is their health conditions. When you are old, you can barely travel for long hours.
4. Invest in Experiences
As I wrote recently
it makes more sense for young people to borrow money to spend on meaningful experiences than to save part of their income and invest it in regular asset classes.
As Bill Perkins wrote,
“Remember that the number of actual experiences available to you diminishes as you age.
Yes, you need money to survive in retirement, but the main thing you’ll be retiring on will be your memories – so make sure you invest in those.
The main idea here is that life is the sum of your experiences.”