I Wish I Knew THIS About INVESTING MONEY When I was 20 😭

so guys i was having lunch with my wife today and we were just reflecting back to our 20s those good old years those beautiful years in our 20s we're thinking to ourselves what do we wish we knew in our 20s and that's what kind of led to today's video that conversation around the various things we wish we knew in our 20s for today's video we want to explore the topic of i wish i knew this about investing money when i was 20. and that's kind of leading us into a mini-series about different topics such as i wish i knew this about making money or i wish i knew this about marriage when i was 20. if you'd like to see that mini-series drop us a comment and let us know in fact hit a like and drop a comment and let us know that you'd love to see that mini series but anyway today's video is all about investing let's talk about it because there's so many things that we wish we knew and i know you can relate as well if you're one of those people who are now in your 30s 40s and beyond no disrespect then i'm sure you can relate to various things you wish you knew in your 20s and as you watched this video come on let's do this together jump in the comments and let me know as you watch it what occurs to you as things you wish you knew about investing money oh and by the way if we do go ahead with a mini series for those who are watching in the future look in the section below and above to links to the other videos that will follow this particular one focused on investing all right let's dive straight in all right so the first thing i wish i knew when i was 20 was that i wish i understood penny power now i know you're going to be looking at me funny going penny power like ken where'd you come up with that i didn't come up with that name for number one my wife actually did so don't look at me funny right but i wanted to actually illustrate what i mean by penny power by being super practical here so i've got here a penny if you can see that and i've got here a pound if you can see that now the penny and the power reflect a lot in the for many of us we often overlook the penny in our life you might have pennies around your house and for some of you watching the penny might represent let's say 20 pounds for example and for some other people the pound being 100 times that might represent say 2 000 pounds and often for a lot of us the focus is on the 2 000 pounds as an example rather than on the penny now the reason we call this penny power is to say essentially that the penny by itself has the same possibility from a returns perspective as does the pound so let's say for example if i took the penny and the pound forget you know fees and all these other things that might complicate things let's keep things really simple imagine i took the penny and invested it in the same thing as i invested the pound and the pound generated an eight percent return the penny would also generate an eight percent return so the one thing i wish i knew when i was 20 was not to kind of just overlook the little bits of money that i had in my life i might have had like 10 pounds in my pair of jeans i might have had like five pounds in my drawer but then i'd overlook them and think yeah that's just change like who cares it's just small money what difference does that make but the key thing to take away is that the penny has power the same power it might not have the same level of utility as the pound but the penny and the accumulation of those pennies has power when it comes to investing money and helping you to ultimately build wealth over time all right so the second thing i wish i knew when i was 20 was that there are different kinds of investing strategies now i mentioned this because you can probably relate to this right everywhere you look someone's shouting down your throat about trading trading this trading now trading this invest your money by trading and that might make you feel that the only thing you can do is to go and do trading after all trading is buying and selling but buying and selling in the short term to the point where you most likely would probably lose your money like most people who trade the thing i wish i knew was that really and truly there are different investing strategies which you can choose which one you want to go with depending on what your goals are and what your attitude to risk is for example now i've written some examples for you guys just kind of illustrate what i'm talking about so different investing strategies include buy and hold where you buy a stock or a fund or whatever and you hold it for the long term that's an investment strategy value investing where you're essentially looking for deals you're looking for bargains a bit like warren buffett does growth investing where you are focusing on that next big thing that next big company that might turn into a unicorn and make you loads of money income investing where you are investing and prioritizing income in your life such as dividend income investing and the like or even dollar cost averaging where you are investing little bit each month as a strategy for reducing the risk tied to your money being exposed say to the stock market and of course connected to dollar cost averaging it's the subject of passive investing and things like that that we talk about a lot on this channel when it comes to investing in index funds and etfs but the point here is simple i wish i knew that there were these different strategies and if you're somebody watching today and you're not aware of the different strategies then you should definitely be exploring all these different ones i've mentioned before you even listen to anybody that talks to you about trading and potentially losing your money if you've not seen the video we made recently called why most people lose their money in this stock market it is definitely worth a watch i'm gonna put a link to it below and above head over and check it out all right so the third thing i wish i knew about investing is how compounding makes you and i richer by investing early now this is an interesting one because i bet i bet when you're at school you've probably heard about compound interest right it was that boring section in your maths curriculum or some other subjects you did and you learned the theory of compound interest but a bit like me one thing i didn't know was that compounding interest was actually a concept that was really on my side like it can work against me when it comes to debt but compound interest could also be on my side from the perspective of wealth building so to illustrate this point to you guys i've got two very practical examples so first of all let's put up on this screen a screenshot of something i did on excel just kind of illustrate the mechanics it's when you say companion people are like huh like what does it really mean they kind of get it a little bit but they're not quite sure how it is that money compound so i've just done this illustration remember this is illustration only and i've assumed in here that let's say somebody's investing a thousand pounds right and they're earning a return of 10 per month illustration just so we can see the numbers moving okay before you guys start to comment and tell me like ken where'd you get 10 from it's just 10 for illustration purposes per month okay you can see up on this screen if you look at that if somebody invested a thousand pounds in january you see that the return ten percent for that ten percent of a hunt of a thousand is a hundred they'd have an n value of one thousand one hundred then the next month they start with one thousand one hundred and have ten percent of that as a return which is 110 pounds you see the n value for that being 1210 and that process carries on each month again for illustration purposes to get us down to december where the starting value is 2 853 pounds 10 of that's 285 pounds and of course with an n value of 3 138 pounds or dollars or whatever okay the reason i've shown you this is to show you guys that the change in return from that hundred pounds in january in yellow to the 285 pounds in december shows us the visual impact of compounding yeah because if it was just simple interest then that number would not be changing or increasing each month but because the money is compounding by that assumed rate of return we are able to visually see compounding at work and the wealth in this hypothetical example for this person growing over time now now that i've got that out the way let's now look at why compounding really matters hop on the screen again is an illustration okay of two people we've got lucy lucy's 19 years old and lucy is starting to invest her money at the same time we've got ben ben is also young and he's you know kind of having fun and enjoying himself and he's thinking to himself well actually i'll just chill out and wait you know what i'll wait a few years later i'll start investing my money so lucy decides to start investing her money and in this example she's investing 2 000 pounds per year that's it and earning herself a 10 nominal return uh per year okay this is again it's illustration purposes only but what's very interesting about this example is we're trying to work out who would get to a million pounds first by the age of 65. you'd see that on that screen let's say in this example lucy invested two thousand pounds only four per year for seven years that's a total of 14 000 pounds but lucy having invested that 14 000 pounds began investing at the age of 19 and then by the age of 25 she stopped that was it she just left her money working and getting returns on the other hand ben began investing at the age of 26 again investing two thousand pounds a year and he invests 2 000 pounds a year for 40 years meaning that he invested a total of 80 000 pounds now you would think right that ben would end up being a lot richer than lucy but unfortunately he doesn't according to this because compounding weight compounding was compounding really builds up momentum the earlier you begin investing and you can see if you look right down to the bottom of the screen can see that by the age of 65 lucy although she only invested for seven years and invested 14 000 pounds she ends up with a total of nine hundred and forty four thousand six hundred and forty one pounds but ben who invested every year but started late at the age of 26 instead of by the age of 19 he invest for 40 years investing 80 grand ends up with 893 704 pounds what's even more remarkable is if you look at the line below you can see the number of times their money is multiplied lose his money if you take her n value divided by how much she invests which is 14 000 pounds you can see that her money multiplied 66 times 66 times but if you look at ben's number take the same total number he ended with and divided it by 80 000 you see that his money only multiplied 11 times this illustrates to us guys the amazing power of starting to invest early and the impact that compounding can have when it comes to building wealth for early investors i hope this illustration has been fun because this is one way we teach people who are trying to teach their kids how to invest money to make it a bit of fun and show them how money can work over time just kind of show them why it's important to let their money stay invested for a long time if you're interested in learning more about this we've written a very detailed blog post i'll link to it below and above go and read it for free and learn some more practical ways that it helps to actually start investing early alright so the fourth thing i wish i knew was that taking more risks pays most of the time okay now i say this because in my early 20s i wasn't really taking risks as i did later on in my kind of mid to late 20s and i say this because in my mid to late 20s i started to invest in individual stocks buying you know the likes of amazon netflix and eventually over time bought tesla and stuff like that and you know although those companies did fairly well and some of them i saw too early like for example tesla was a good example of that and so on although i took those risks and made money from those companies i also lost money by investing in other companies like easyjet and barclays and stuff like that okay now i mentioned that just to say that it's very important to get accustomed to taking some risks now i'm not saying here take all your money and ken has said it's good to take some risks and go and like chuck it all into one thing and lose all your money potentially that's not what i'm saying what i'm saying is that it's good to develop that attitude of risk-taking and for me having developed that actually of risk-taking by investing in these various companies and you know getting my feet wet essentially seeing some returns seeing some losses meant that in other aspects of my life i also got more interested in risk-taking whether it be investing in other asset classes like starting a side hustle or a business or going into a joint venture but applying the same mindset of you know that roi mindset of trying to aim to get myself a return on my investment so i'm saying all this to encourage those of you who might even be you know in your 20s now or even younger or those of you who might be a lot older but you've got younger children i'm saying that to say that getting them accustomed to taking some risks really really does matter over time you know it really does matter for who they become imagine really putting the knowledge you've got now to work in the lives of the younger ones just imagine what their future financial lives could look like by you using the know-how the things we're teaching on this channel using it to change the practical reality of their lives in the very future all right so the final thing i wish i learned about investing was about the power of dividends that's right okay so you might know this already you probably might know that you know the total return you get from an investment is made up of two returns there's a capital return so the thing going up in value potentially then there's an income return that comes from you generating an income tied to that investment say for example if you invest in a stock market you might get a dividend return say for example you got a capital return of say five percent and an income return from dividends of say three percent then your total return would be eight percent in that scenario but what's interesting is that we often don't really think a lot about the power that dividends have when it comes to wealth building and this is one thing i wish i knew when i was 20 okay because it would have changed the way i looked at investing it would have made me think very carefully about the types of assets that i invested my money into now tied to this did you know did you know that going back to the 1970s and this is the fact that 84 of the total returns of the s p 500 index can be attributed to reinvested dividends and the power of compounding did you know that 84 comes from reinvesting dividends and compounding getting to work i'm just going to put up on the screen a chart that really speaks to this so you can see in that chart the growth of ten thousand dollars over time you can see uh the figure at the bottom is a growth uh in the s p 500 with no dividends and they can see the growth with dividends at work being reinvested okay and that really blew my mind you know when i learned about that myself for you know quite some time ago but i wanted to just bring that up on this video because some of you what you might not be aware about the power of dividends and the power of making sure that you are generating an income on your investment and not just aiming for that capital but that also where possible particularly during your you know this wealth accumulation phase of your life that that income is being reinvested and and you'll essentially feeding the compound compounding machine and for that compounding machine provided you've been investing for quite some time for the compounding machine to get to work in helping to build wealth a lot faster guys it's your turn i'd love to hear from you in the comments what one thing do you wish you learned about investing money at the age of 20 jump in the comments and let's have a bit of fun it'd be really interesting to see if we see some commonalities in the various things that we post as a comment don't forget as i asked you guys if you'd love to see this as a mini series let me know if you'd love to see you know i wish i knew this about say money making at the age of 20 or about marriage at the age of 20 guys jump in the comments let us know so that we can make those videos as well if you've not liked this video already cover come on share some love that really really really helps us when you hit that like button because that just helps this video to get promoted to so many more people okay thank you so much for watching guys and as ever in all things be thankful and seek joy take care and bye for now

Channel: The Humble Penny

Views: 7,160

Keywords: investing for beginners uk, stock market for beginners, how to invest in stocks for beginners, stock market for beginners uk, how investing works, how to invest, how to invest in stocks, how to invest in the stock market, how to invest money safely, investing, investing 101, investing for beginners, investing for beginners guide, investing in stocks for beginners, stock market, stocks, stocks to invest in 2021, stock market 2021, investing 2021, humble penny, uk stock market

Id: C9c4TCAe1SE

Length: 16min 35sec (995 seconds)

Published: Thu Nov 04 2021