If you could give your young adult kids any advice, what would it be?
I started thinking about this 18 years ago after reading “Advice I’ll Pass Along to My Daughter.” In that Wall Street Journal column, author Jonathan Clements reflected on key financial lessons he learned from his own post-graduate challenges—struggles from which he hoped his freshman daughter might benefit as she headed off to college.
The advice in Clements’ 2006 article was both inspiring and timely, as my wife had just given birth to the first of our three daughters. I tucked the article away, hoping I’d remember to share similar insights with our baby girl one day.
Somehow, 18 years have flown by, and Emma is a now a freshman in college. Before saying our goodbyes this August, I dusted off and re-read Clements’ column. It reminded me that our children’s own financial struggles will teach them much more about life and finances than we could ever teach them.
Still, in the coming years, Emma will navigate a series of adult milestones: opening her first credit card, signing a rental agreement or buying a house, contributing to a 401(k), or even saving for her own kids’ college.
I hope these nine financial and life tips gained from the highs and lows of my own experience help make Emma’s journey a happy and prosperous one:
- Happiness is more than money. That’s tough to remember when you’re a broke college student or a young adult who’s struggling to pay the bills. But happiness has less to do with what’s in your wallet and more to do with who’s in your life. Nurture your relationships—new and old—and you’ll live a happier, more fulfilling life.
- Start saving and investing early. Young adults possess something your wealthier, older friends and family don’t: time. Use it to your advantage. A 20-year-old who saves $10 per day for 10 years and earns 5% per year might have $116,000 by age 40. If they don’t start until age 30, they’d have just $71,000. Time and compound interest are a powerful tailwind.
- Diversification is your buddy. Spread your investments across different asset classes, sectors, and geographies to reduce risk. Even then, investments which typically move in different directions can suddenly tumble together. Safe bonds can be a good shock-absorber for the bumpy ride stocks so often provide.
- Risk and return go hand-in-hand. Over the past 30 years, U.S. stocks have declined on 46% of all trading days. Daily losses of more than 1% have occurred about every week, and longer drops of 10% about every year. Yet if someone had invested $100,000 in the S&P 500 index thirty years ago, they’d have nearly $1.7 million today. Staying invested through thick and thin takes uncommon discipline and patience.
- Ignore the hype. Financial “experts” in the media claim beating the market is easy. But the evidence clearly shows most investors—even the pros—fail to do so. While low-cost index funds which track the market are often mocked as boring and unsophisticated, they give investors their best chance of investment success. And over time, using index funds will help you beat most of the pros at their own game!
- Get comfortable with losing. In my struggles as a professional tennis player, I took solace in the fact tennis legend Andre Agassi lost 24% of his tour-level matches. Investing works in much the same way: Stock markets have declined about 25% of all calendar years. Expect occasional losses in your portfolio and you’ll be much better prepared to overcome them.
- Be curious. Curiosity fuels creativity, innovation, and improvement. Engage with the world around you. Develop a deep interest in people and how things work. Ask questions—and then spend some time reflecting on the answers to uncover how you can improve your life and the world around you.
- Be generous. Many of us feel happiest when serving others — whether volunteering, coaching, or donating to charity. Turns out, there’s a reason for this: the part of our brain that controls cravings for food and sex literally lights up during acts of giving. In other words, it is inherently rewarding to be generous.
- Enjoy the journey. We sometimes fall into the trap of focusing on “what’s next,” convinced the next car, vacation, or promotion will satisfy our heart’s desire. But too often the momentary satisfaction doesn’t translate into lasting happiness. What gives our life meaning is finding joy in the journey itself.
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Read Jonathan Clements’ article, Advice I’ll Pass Along to My Daughter, originally published on December 10, 2006 in the Wall Street Journal. Subscription may be required to view.
