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Nobody Told Me

Jonathan Clements  |  February 8, 2020

I HAVE DEVOTED my entire adult life to learning about money. That might sound like cruel-and-unusual punishment, but I’ve mostly enjoyed it. For more than three decades, I’ve spent my days perusing the business pages, reading finance books, scanning academic studies and talking to countless folks about their finances.

Yet, despite this intense financial education, it took me a decade or more to learn many of life’s most important money lessons and, indeed, some key insights have only come to me in recent years. Here are 10 things I wish I’d been told in my 20s—or told more loudly, so I actually listened:

1. A small home is the key to a big portfolio. My first wife and I bought a modest house, because we worried that we couldn’t really afford anything bigger. I ended up living in that house for two decades.

Financially, it turned out to be one of the smartest things I’ve ever done, because it allowed me to save great gobs of money. That’s clear to me in retrospect. But I wish I’d known it was a smart move at the time, because I wouldn’t have wasted so many hours wondering whether I should have bought a larger place.

2. Debts are negative bonds. From my first month as a homeowner, I sent in extra money with my mortgage payment, so I could pay off the loan more quickly. But it was only later that I came to view my mortgage as a negative bond—one that was costing me dearly. Indeed, paying off debt almost always garners a higher after-tax return than you can earn by investing in high-quality bonds.

3. Watching the market and your portfolio doesn’t improve performance. This has been another huge time waster. It’s a bad habit I’m belatedly trying to break.

4. Thirty years from now, you’ll wish you’d invested more in stocks. Yes, over five or even 10 years, there’s some chance you’ll lose money in the stock market. But over 30 years? It’s highly likely you’ll notch handsome gains, especially if you’re broadly diversified and regularly adding new money to your portfolio in good times and bad.

Over the past decade, I’ve upped the bond position in my portfolio, so today—at age 57—I’m at 60% stocks and 40% interest-generating investments. (The latter includes the private mortgage I wrote for my daughter.) But long before then, I spent an awful lot of time debating whether to invest more in bonds. It simply wasn’t necessary.

5. Nobody knows squat about short-term investment performance. This is closely related to point No. 4. One of the downsides of following the financial news—or, worse still, working as a columnist at The Wall Street Journal—is that you hear all kinds of smart, articulate experts offering eloquent predictions of plummeting share prices and skyrocketing interest rates that—needless to say—turn out to be hopelessly, pathetically wrong. In my early days as an investor, this was, alas, the sort of garbage that would give me pause.

6. Put retirement first. When I was in my 20s, I remember a financial expert saying that, “If you don’t own a house by age 30, you’ll likely never own one.” I didn’t realize it at the time, but not only was this alarmist nonsense, but also it prioritized the wrong thing.

Buying a house shouldn’t be our top goal. Instead, retirement should be. It’s so expensive to retire that, if you don’t save at least a modest sum in your 20s, the math quickly becomes awfully tough—and you’ll need a huge savings rate to amass the nest egg you need.

7. You’ll end up treasuring almost nothing you buy. Over the years, I’ve had fleeting desires for all kinds of material goods. Sometimes, I caved in and bought. Most of the stuff I purchased has since been thrown away.

Today, I have a handful of paintings and some antique furniture that I prize, and that’s about it. This is an area where millennials seem far wiser than us baby boomers. They’re much more focused on experiences than possessions—a wise use of money, says happiness research.

8. Work is so much more enjoyable when you work for yourself. These days, I earn just a fraction of what I made during my six years on Wall Street, but I’m having so much more fun. No meetings to attend. No employee reviews. No worries about getting to the office on time or leaving too early. I’m working harder today than I ever have. But it doesn’t feel like work—because it’s my choice and it’s work I’m passionate about.

9. Will our future self approve? As we make decisions today, I think this is a hugely powerful question to ask—and yet it’s only in recent years that I’ve learned to ask it.

When we opt not to save today, we’re expecting our future self to make up the shortfall. When we take on debt, we’re expecting our future self to repay the money borrowed. When we buy things today of lasting value, we’re expecting our future self to like what we purchase.

Pondering our future self doesn’t just improve financial decisions. It can also help us to make smarter choices about eating, drinking, exercising and more. Tempted to have one more slice of pizza? Tomorrow’s self would likely prefer you didn’t.

10. Relax, things will work out. As I watch my son, daughter and son-in-law wrestle with early adult life, I glimpse some of the anxiety that I suffered in my 20s and 30s.

When you’re starting out, there’s so much uncertainty— what sort of career you’ll have, how financial markets will perform, what misfortunes will befall you. And there will be misfortunes. I’ve had my fair share.

But if you regularly take the right steps—work hard, save part of every paycheck, resist the siren song of get-rich-quick schemes—good things should happen. It isn’t guaranteed. But it’s highly likely. So, for goodness sake, fret less about the distant future, and focus more on doing the right things each and every day.

Follow Jonathan on Twitter @ClementsMoney and on Facebook. His most recent articles include Great to GoneFive Freedoms and Helping Them Along.

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Daniel Cluley
Daniel Cluley
1 year ago

I would put a caveat on this.

Buy things you will use and use well, experientally.

My best material purchases are things I use all the time to make my life better or make me exercise or make me remember experiences.

Utility over ostentation.

tman9999
tman9999
1 year ago

Great list! I’m about the same stage as you are, and it’s great to read this as check off how we’re doing or have done thus far. Two things came up for me as I read through your list.
1. Your point about debts being negative bonds didn’t quite add up when it comes to mortgages. What if you think about debt compared to the return that money could make if properly invested? At 2.5-3%, a mortgage frees up money that could be conservatively invested (60/40 or 70/30) and generate a nice return over the term of the mortgage.

2. Put retirement first (#6). When we were in our 20s the people we looked to for insight about retirement were people who were near or already retired. They had these magical things called pensions. Why would you think about retirement when you’re 25 when you figure you can just work your tail off for 40 years, and then get the gold watch spend your monthly check on whatever you want – forever? Yeah, no. That game changed in the middle for us- somewhere around 2000 big companies started phasing out pensions – now almost no one offers them. Younger people know this and hopefully have adjusted. There was no way we could’ve known.

gofi
gofi
1 year ago

I like the sense of nostalgia in all your pieces – my wife and I got a townhouse for $335K. HH gross income is around $170K. Did we buy too much?

ScubaSkier
ScubaSkier
1 year ago

People spend too much time thinking about what they will do in retirement and save too much money so they can afford those things. For a great number of people, unexpected health issues will prevent them from doing those things. My advise is to do more now when you are younger and healthier. You will enjoy the beach more staying in a cheap resort now than you will staying at a 5 star resort and being pushed in a wheelchair when you are 70.

Scott
Scott
1 year ago

Outstanding piece. Good advice for young and old, alike. Number 8 (work for yourself) especially resonates as I contemplate what to do with the last chapter of my working life after being cut loose by my long-time employer. Your column reminds me to entertain all options, including self-employment.

betsy L
betsy L
1 year ago

I faithfully read every week because it’s the only column that makes sense and isn’t trying to sell you on something. I have a question. I’m 65, single, no debt with 3M in investable assets. I keep 3 years of cash, the rest in individual stocks. Private investment manager charges me 60 basis on the first 1M, 40 above that. Is this too much risk for my age? I have 2 homes, and spend amount 150K per year. Should I have more in cash? I thought about buying land when we get into a recession. Just wondering your thoughts and thanks for all the good writing over the years

davebarnes
davebarnes
1 year ago

The 10 points are excellent advice.

Our (ages 71/62) asset allocation is 73/27.
The 27% bonds equal 7+ years of current spending. I don’t see a need for more bonds/cash that this.
I manage our money and keep it simple. 2 stock index funds and 2 short-term bond funds. Total fees at Fidelity are 0.23%. Every year I meet with our Fidelity guy (for free) and he says: “more bonds” and I say: “thank you.” Then I ignore his advice.

Peter Blanchette
Peter Blanchette
1 year ago

Excellent advice. I would tweak #1 by saying the key to success is to have the lowest possible housing costs as % of income, whether by buying or renting. Many people do not have the option to stay in the same region of the country throughout their working lives. Also, sequence of return risk for people in the 55 to 65 age bracket is an important issue that should be factored into asset allocation changes that are made over time. I look at equity asset allocation as a U-shaped process throughout one’s retirement investing horizon. Go from 70% to 30% in equities from age 25 to 55 and 30% to 70% from age 55 to 85. If one has enough during the liquidation phase(65 to 85) one can choose not to continually raise equity allocation. It is easier to recover from a large correction during the retirement accumulation phase than when that person is close to or farther into the retirement liquidation phase. I do not like Target Date funds because they do not address sequence of return risk.

d storm
d storm
1 year ago

I grew up picking fruit with migrant laborers, and turned 21 in Vietnam, so it also requires a sense of almost irrational optimism for a person with that background to believe he can earn college degrees and become a multi-millionaire. But it can be done.

greglee
greglee
3 months ago

Buying a house and supporting your retirement are not necessarily distinct. My wife and I bought a house in 1994, finished paying for it in 2004, retired in 2010, and that’s where we live now . It’s rent-free, of course.

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