Take More Risks in Your 20s? It Could Help You Reach FI Faster

Redefining Investment Risk [0:00]

• Conventional wisdom suggests taking risks in your 20s, but financial independence requires a nuanced view of risk.
• Risk is often perceived as market volatility, but it also encompasses the risk of not achieving financial goals, like insufficient retirement savings.
• For those in their 20s with a long time horizon, a 100% stock allocation is argued to be the best way to "de-risk" retirement planning.

  "But risk is kind of a broader category than that, right? Because it could be the risk that you lose your job or the risk that you don't have enough money in retirement, which is totally decoupled from the volatility that we think of."

The 100% Stock Strategy [2:54]

• For individuals in their 20s pursuing financial independence, investing 100% in stocks is recommended.
• Bonds are seen as less effective for growth over long periods compared to stocks.
• The risk of not having enough for retirement is considered greater than the risk of stock market fluctuations.

  "However, because of this long time horizon that you have, I think 100% stocks is absolutely the best way to de-risk your retirement because you've got the long time horizon."

Navigating Market Downturns [5:39]

• Experiencing market crashes is common over a long investing career, including events like the 1987 crash, the dot-com bust, and the 2008 recession.
• Despite these downturns, the stock market has historically recovered and reached new highs.
• Maintaining a long-term perspective is crucial, as investments are typically for decades, not short-term gains.

  "And the market now is higher than it was at any point that I just mentioned."

Mindy's Early Investing (or Lack Thereof) [9:39]

• Mindy Jensen did not invest significantly in her 20s, focusing instead on paying down debt and buying a condo.
• She learned that investing a smaller amount consistently from age 22 to 30 could yield more by age 65 than larger investments made later.
• Her early real estate investments, like buying a condo for $49,000 and selling it for $75,000, provided significant returns.

  "And asked me how much I invested from age 22 to 30. Almost nothing. I probably didn't invest much of anything in my 20s besides a house."

Emotional Investing vs. Philosophy [12:40]

• Even seasoned investors experience emotional reactions to market drops.
• It's vital to rely on a fundamental understanding of investing: markets fluctuate, go flat, and recover.
• Staying strong and adhering to one's investment philosophy is key, especially when pursuing ambitious goals like financial independence.

  "It's okay to kind of have an emotional reaction, but kind of staying strong and understanding your investing philosophy is so important."

The Cost of Missing Top Market Days [17:50]

• Missing the 10 best trading days over 20-30 years can cut total returns by approximately 50%.
• These top-performing days occur randomly and unpredictably.
• The stock market's movement lacks a consistent rhyme or reason, experiencing random ups and downs.

  "They come randomly for no reason whatsoever. There is absolutely no rhyme or reason to the stock market."

Career Risk: Job Hopping vs. Stagnation [21:03]

• Job hopping can increase income, but may impact long-term career goals.
• Staying at the same job due to fear of change can lead to missed income opportunities, as new hires often receive better compensation packages than existing employees.
• Moving companies every few years can provide valuable experience and skill development.

  "It is risky to stay at the same job because you're scared to go out and try something new."

Advocating for Yourself and Praise Folders [26:40]

• Employees should advocate for themselves to receive raises and promotions.
• A "praise folder" is a useful tool to collect positive feedback and accomplishments for discussions with management.
• Saving praise emails or messages, even from company Slack, can provide concrete evidence of good performance when asking for a raise.

  "And then when you go to your boss, you have all these examples of people praising you, saying, oh, wow, Evan and Mindy did such a great job on this project."

Side Hustles: Low-Risk Entrepreneurship [30:25]

• Starting a side hustle while employed full-time is a low-risk way to explore business ventures.
• Mindy Jensen successfully worked as a real estate agent while holding another job, generating leads from her workplace.
• Evan Lawler started a social media business, ensuring transparency with his manager beforehand.

  "But also very low risk as my income source because it wasn't my only income source."

House Hacking and Roommates [36:36]

• House hacking, or living with roommates to reduce housing costs, is a viable strategy for financial independence.
• Even if unable to buy a property, being a renter in someone else's house hack can lower expenses.
• Sharing housing costs significantly reduces financial burden, especially if income is lost.

  "Your housing expense is part of the big three that we always talk about, housing, transportation, and food costs."

Avoiding High-Interest Debt [43:36]

• High-interest debt, such as credit card debt, is extremely risky and can set individuals back for decades.
• It's crucial to avoid accumulating such debt, as the compound interest works against you.
• If high-interest debt exists, prioritizing side hustles to pay it off quickly is recommended.

  "So if you're talking about credit cards or some other form of high interest rate debt, it's so hard to get in front of that and it's just so risky even if it's, you're trying to get into an investment or some other kind, I would say just avoid it at all costs."

Emergency Funds and Diversification [46:57]

• Investing an emergency fund is not recommended due to the risk of market downturns when funds are needed most.
• Emergency funds should be kept in high-yield savings accounts.
• Putting all investments into a single asset, like a volatile individual stock, is risky; diversification through index funds is essential.

  "The emergency fund is not there to grow. It is there when you need it."

Real Estate and Insurance Risks [51:00]

• Buying more house than one can afford is a significant risk, as unexpected repairs can be costly.
• Ignoring insurance (health, renter's, auto) is a major risk, as catastrophic events can lead to financial ruin.
• A $27,000 medical bill in 1996 for an emergency appendectomy highlights the critical need for health insurance.

  "If I had not had insurance, I might have had to file bankruptcy. I mean, that was, and I don't even know if you can discharge medical bills in bankruptcy."

The Danger of Hot Stock Tips [55:30]

• Investing in speculative assets like cryptocurrency or following "hot stock tips" is highly risky for young investors.
• The allure of high returns (20-25%) can be tempting, but often these investments are at their peak or are unreliable.
• Diversified, low-cost index funds are the recommended investment strategy for long-term financial independence.

  "If you get a hot stock tip, chances are good that it is either at the top that it's going to be or it's a garbage tip."