‘What I should have told myself about investing at age 21’

Photo of Tania Smyth (Morgans), Ishara Rupasinghe (Dixon Advisory), and Rebecca Pritchard (Wealth Enhancers). By Tania Smyth (Morgans), Ishara Rupasinghe (Dixon Advisory), and Rebecca Pritchard (Wealth Enhancers).

min read

Starting early and spreading risk can help young investors build a handy nest egg.

ASX Investor Update asked three financial advisers, ‘what is the one piece of investment advice yourself should have given yourself when you turned 21?’, in hindsight.

Here are their responses:

1. Ishara Rupasinghe, director, Dixon Advisory
Life is great when you are 21. There is relatively little responsibility, so much energy and you feel like you’ll be young forever. Certainly, thinking about the future, particularly my financial future, wasn’t top of my priorities.

At 21 I was completing my university degree, I had a part-time job and while I have always been financially sensible, if I could go back in time the one thing I would do differently is regularly put a little bit of each pay cheque into investing.

This would force my 21-year-old self to take an earlier interest in sharemarkets and wealth building, and therefore I would have become better informed much earlier about the financial world. The phrase “knowledge is power” is so very true.

If I was 21 again and put just $100 a month from my pay into a diversified share investment, like Brickworks (ASX Code: BKI), over the past 10 years I have more than $17,000, because it has returned 7.8 per cent per annum on average over that period. That’s the power of investing and compound interest.

Imagine what I could have done with this? It could have:

  1. Helped towards a deposit for my first home, even after paying capital gains tax.
  2. Been a portfolio to draw on while I was on maternity leave.
  3. Been the foundation for a bigger, more diversified investment portfolio that I could further grow and eventually use to help fund my retirement.

Thinking back to when I was 21, it doesn’t even take one hand to count the number of females I knew that owned shares or discussed investment ideas. In comparison, my male friends would openly talk about investments, even if they only held one share.

Now, as an adviser, I would tell my younger self that investing in one share can be a good way to get an in-depth understanding of the company but putting your eggs into one basket can be quite risky. Whereas, a listed investment company, which invests in a whole bunch of companies, could have helped my younger self spread the risk.

Hindsight can be a blessing and a curse at the same time, can’t it? Even a small saving made regularly into a sensible investment can really make a difference in the long run.

Being able to impart this knowledge to the next generation so that they can build a better financial future for themselves is special.

2. Tania Smyth, broker, Morgans
Start now! Like any discipline, the sooner you start, the easier it becomes. You have just started your career and learning as much as possible to move up the ladder. Focus on this to increase your earnings capacity – invest in your career.

Then invest in your financial future. Your living costs are low now. Before you get too comfortable spending all that you earn, commit to saving a percentage of your salary (it's so easy to set up an auto-transfer, you won’t miss it) and use it to invest in shares.

You don’t need much to get started; just start. Unlike buying property, you do not need to borrow and you are nowhere near ready to make that sort of commitment anyway.  You want to have a bit of fun too.

How and what to invest in? It takes years to learn what makes a good investment, and you are busy focusing on your career so employ an expert to help you. Not only will you receive advice to get you started, a good adviser will be able to pass on their knowledge about diversification, asset allocation and what makes a good investment, and can recommend some reading for you to increase your understanding.

You may only have a small amount of money now, but you expect that to grow as you work out your financial goals; you really have no idea now. Ask your family and trusted close friends if they have a financial adviser they can recommend.

Don’t expect a result overnight with your investments, but over time. Don't panic when markets fall, as you can be sure this will happen at some point (an adviser can counsel you through this). And reinvest any dividends and let the power of compounding work its magic.

While I have your attention and you are on a roll, now that you are working, your employer will have arranged with you a super fund where they can make your compulsory contributions. Take five minutes to look at what your fund invests in. It may seem boring but you won’t regret this decision and you will be thanking yourself in your mid-40s.

Super will suddenly start to become more interesting then and because you built up your investment knowledge from a young age you may want to manage it yourself in a self-managed super fund. That is an eternity away.

In the meantime, choosing a suitable investment option now will have a major impact on returns over time. You want it to grow and keep up with inflation. Check out ASIC’s Moneysmart website, which explains the broad investment options in super. Of course, you could ask your new financial adviser for guidance.

3. Rebecca Pritchard, Gladiator, Wealth Enhancers
Full disclosure – I was a total nerd at 21 and already considered managing my budget and finances as a hobby. I was a pretty good (but by no means perfect) saver, always saying yes to extra shifts at work, and overly confident in my own sense of achievement through having saved a bit of a cash pool.

Looking back, I would have told myself to cool my obsession with property and to start thinking about broadening my portfolio. I knew I wanted to have investments and thought property was the most logical place to start.

The Global Financial Crisis hit when I was 19 and as a student of commerce I took this as an opportunity to buy my first shares. They were almost entirely banking shares (back when I thought diversification was holding CBA and ANZ at the same time).

I then sold them all to buy my first house a couple of years later. That was the be all and end all, and it meant that I took on a mortgage very young, without a huge amount of leftover cash and no other assets (outside superannuation).

My intention at that point was to pay off my mortgage and then to get back into the sharemarket. It didn’t cross my mind to continue to invest while paying off the mortgage, until it was recommended to me by the Wealth Enhancers team a year later.

I had no idea of the concept of regular investing (although admittedly there were not great platforms back then to allow this) and that it could be something very simple and easy to do alongside a property.

Looking at my financial management back then, I wish I understood the concept of long-term investing better, so I wasn’t thinking with such a short-term lens.

Instead of seeking to make quick-win transactions, I would tell myself to always keep a few things in the pipeline towards a variety of goals, so that when I achieved one thing (like buying a house) I wouldn’t be starting from square one with my other goals.

From ASX

ASX online courses cover shares, interest-rate securities, warrants and instalments, exchange-traded funds, options and futures. The shares course has 11 modules, each taking 10 to 15 minutes to complete. Topics covered include: What is share; How to invest; Risk and benefits of shares; What to consider in an investment; and How to buy and sell shares. Simple summaries and quizzes in each module make learning fast, easy and enjoyable.

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