Please ensure Javascript is enabled for purposes of website accessibility

Rule Breaker Mailbag: Is There a Good Investment Strategy for Investing on a 25-Year-Old's Income?

By Motley Fool Staff - Dec 3, 2017 at 6:30PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Listener Dylan is a young professional looking for advice on building up his portfolio.

In this segment from the Rule Breaker Investing podcast, David Gardner dips into the mailbag and finds a question he doesn't feel he has a good answer for: Beginning investor Dylan recently took a sum of money he'd had in savings bonds and put it into four Stock Advisor recommendations, and wants to start bolstering his portfolio with more stocks over time. The question: What strategies should a young professional -- drawing a young professional's salary -- use to expand his holdings?

A full transcript follows the video.

This video was recorded on Aug. 30, 2017.

David Gardner: This comes from another Minnesotan. In fact, [Dylan Dimkey], you come from beautiful, as you write, Brainerd, Minnesota. You're 25 years old. You're going to ask a question that I'm not going to have a good answer to, but I am going to say something toward it. So here's what you wrote.

"I'm very new to stocks and investing. I've just found it to be absolutely fascinating. I joined Stock Advisor about a month ago. I've been catching up on your Rule Breakers podcasts as well as a few others that The Fool offers. I want to say thank you for all you do for young investors like me. You and your team at Fool HQ do a wonderful job." I'm not going to read all this, but thank you very much.

You go on to say, "I recently cashed out all of my EE savings bonds that had been given to me each birthday" -- I'm sure others of us have had this experience as kids -- "since I was born", [Dylan] writes. He says that's not a huge sum of cash, but it is substantial at this point in his life at the age of 25.

And he used the money to purchase, you said, "three of my favorite stocks off the Starter Stocks list of Stock Advisor," and you go ahead and say that they're Apple, Nike, and PayPal. You now are a part owner of those companies. Congratulations, Dylan! As well as another Stock Advisor stock. That would be Activision Blizzard to begin, you say, building your investing foundation.

You go on, "I buy in completely with the strategy of purchasing great companies for the long haul, so I'm doing my best not to pay attention to the daily fluctuations in their stock price. I'd also like to take your advice and purchase 15 different companies as soon as possible.

"However, I don't have a lot of expendable cash at the moment to continue investing. I do dedicate 5% of my salary matched 40% by my employer to a Roth 401(k) or maybe IRA, but I feel like I'm missing out on a golden opportunity to get into some more great companies at an early age and allowing the wonder of time to work its magic. Do you have any strategies for a young investor to continue adding to his portfolio while bringing in a young professional's salary? An anxious Fool, [Dylan Dimkey]."

Well Dylan, first of all, good on you, because it is outstanding to hear from a 25-year-old who's already putting away 5% of his salary. Yes, we'd love to see that at 10% if you can squeeze it, so that's my first bit of advice. Squeeze that belt. Can you do 6%? Can you do 7.5%? 10% is really where we'd love it if each of us could get there, and in the end, it's just about controlling your own spending or being utterly disciplined or more cognizant of what you're doing, and that's the best, first answer I have for you.

You're getting an employer match. Excellent. Anybody who's getting an employer match from any employer should max out that match because, as the old saw goes, it is truly free money. You're being given free money to add to your investment nest egg. So good on yah, again.

Really what I want to say, here, is that I'm not a specialist at budgeting or helping people think about how to save more money. We have a lot of resources here at The Motley Fool. When I think about a Motley Fool podcast, like Motley Fool Answers, it sometimes answers personal financial questions about how to save better. How to save smarter.

We also have a discussion board on our free side at Fool.com called Living below Your Means. It is one of our longest running, most prolifically posted to discussion board in Fool history. There are a lot of people helping each other figure out how to live below our means.

You know, I did tweet out just on my own, here, in the last week or two [that] a lot of people talk about the sustainability of our environment or our world, today, and I think that those are great things. I'm glad there's more conversation about that than ever before.

I also want anybody who cares about sustainability to think about personal sustainability, specifically your own financial sustainability. You want the best for your environment. I do, too. I want the best for you, and the best way to be financially sustainable is to live below your means. To have capital that you then go on to invest.

So, [Dylan], what I'm here to say is I'm not great at this. There are a lot of online sites you can probably google. Sites like Mint with a lot of people who do budgeting and share ideas with each other. But really what I want to point out is the beauty of the cycle that you've set up, because not only have you gotten started investing early at a young age, but it has whetted your appetite to have more to invest, and that's one of the most positive dynamics that I see in the financial world today.

When people truly take control of their own destiny via their own finances and they start to save, and then they invest and, yup, the stock market, as it turns out, more often than not goes up; they watch their money do that work for them without them doing any work. You buy those shares of Apple or Netflix. Sometimes you have some tough years, but they go up over time and you know what it makes you want to do? It makes you want to save more.

It makes you realize the beauty of it, and that's what I want for every young person in this world, especially, is to recognize the ownership culture and the beauty of owning companies and letting them grow in value. You benefit from that, and that is maybe the best way to inspire people to save that I know of, and the people who have started it, like you [Dylan], start to ask that positive question, "How do I save even more?" I wish you the best.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
311%
 
S&P 500 Returns
110%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/02/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.