What I Wish I Had Known About Building Wealth in My 20s

Throughout my early career, I was always a motivated saver with a keen interest in business, which led me to study personal finance closely during my college years and early professional life. Now, in my early 40s, reflecting on the knowledge I have gained, there are several lessons I wish I had applied earlier in my post-college career. By doing so, I could have positioned myself in a better financial situation today. Below are the key lessons that, in hindsight, would have been invaluable.

Lesson #1: Grow Wealth Slowly and Carefully

One of the most important realizations I have come to is that building wealth requires time and patience. There is no quick way to "get rich" unless through highly improbable scenarios, such as winning the lottery or engaging in unethical behavior. The lottery, by definition, is a random event, and obtaining wealth through deception is neither a sustainable nor a morally sound approach.

Although I sought accelerated methods to grow wealth during my earlier years, the reality is that while it is possible to be aggressive in saving and investing, wealth accumulation still takes time. Regardless of how aggressive one is with investments, the growth of wealth is not immediate. On average, it typically takes 15 to 20 years for an investment to experience substantial growth.

For example, I experimented with day trading for a couple of years—an endeavor that ultimately resulted in a significant loss of six figures. This taught me a critical lesson: it is essential to understand both one’s strengths and limitations. What I should have done was limit my day trading attempts, recognize my limitations, and entrust the management of my investments to professional money managers. This is the approach I follow now—letting the professionals manage the investments while I focus on areas where I excel. Thankfully, I never invested more money in day trading than I could afford to lose, which prevented long-term financial setbacks.

Lesson #2: Save Aggressively, Especially in the Early Years

Wealth-building takes time, and it is imperative to take full advantage of the early years following graduation. In these initial years, the emphasis should be on saving aggressively, as the earlier investments have a longer period to grow.

The power of compounding is particularly evident in retirement accounts. The growth in the later years often exceeds the amount invested during the earlier years because, at that point, the interest and dividends generated by the investments are substantially greater than the initial contributions.

To illustrate, consider a $10,000 investment growing at an 8% annual rate. In the first year, the investment would grow to $10,800. However, after 10 years, the accumulated value might be $1,000,000. In this scenario, the 8% return would yield $80,000, bringing the total to $1,080,000. The key takeaway is that building a sizable investment early on allows for exponential growth over time. Had I focused on building this strong financial foundation in my younger years, I would have been in a significantly better position today.

Lesson #3: Let Professionals Manage Investments

While some individuals possess a natural talent for investing and enjoy success in managing their own portfolios, this approach does not apply to everyone. For most, entrusting investments to professionals is a far more prudent option. Since switching to professional money management, my investments have grown comfortably over the past decade.

If one possesses the knowledge and skill to manage investments effectively, it is commendable. However, for the majority of people, it is often wiser to pay a reasonable fee and allow professionals to handle the intricacies of investment management. For example, retirement plans typically involve professional portfolio management, and reputable firms can generally deliver returns that double the investment every 7-10 years, depending on market conditions.

Reflecting on my own experience, the losses I incurred from self-managed day trading could have been avoided had I sought professional guidance earlier. The $100,000 to $150,000 I lost in those years could have potentially grown to $250,000 to $350,000 today, which represents a substantial lost opportunity.

Lesson #4: Develop a Financial and Cash Flow Plan Early

Looking back, I regret not creating detailed financial plans or spreadsheets outlining my desired net worth in 5, 10, 15, and 20 years. Establishing such a roadmap early on and adhering to it would have greatly increased my chances of achieving my financial goals.

While plans are subject to change due to unforeseen circumstances, having a clear financial plan is far more advantageous than navigating through life without direction. Without careful planning, time tends to slip away, and financial milestones remain unachieved.

Conclusion

In summary, these are the lessons I wish I had focused on earlier in my professional life. Today, I actively work on these principles to ensure my family's financial future is trending in the right direction. By sharing these lessons, I hope to help others avoid the same mistakes I made and expedite their own wealth-building journey.