The Single Biggest Regret of My Late Teens

The single biggest regret of my late teens is not opening up a Roth IRA and investing into the stock market.

One of the best moves you can make as an 18-year-old is to open up a Roth IRA and invest in ticker symbols FSKAX at Fidelity or VTSAX at Vanguard.

What are these ticker symbols?

They are low-cost, market-cap weighted, US stock market index funds. Let's dissect that gibberish.

Why US stock market index funds?

They track the overall US stock market, and you don't have to worry about picking winners and not picking losers.

Why shouldn’t you pick stocks?

Because, most likely, you’ll be wrong.

92% of fund managers don't beat the US stock market when examining time horizons over 15 years. Don't take my word for it, let's examine what legendary investor and author Larry Swedroe has to say.

Host: 85% of large cap managers underperform their benchmark after 10 years, and 92% underperform after 15 years. That’s a pretty poor long-term track record. But everybody always brings up Peter Lynch and Warren Buffet and their ability to outperform. There are a few superstar managers. What was their secret, or is it now not possible to be a Warren Buffet anymore?

Larry Swedroe: They certainly had a secret sauce, and what has happened is the academics have basically reverse-engineered it trying to identify what their common traits or characteristics of stocks that these superstar investors, say, from Graham & Doddsville would buy.

Source: https://youtu.be/gM8rkXyifNw?t=125

Here, Larry is referring to “Factor Investing,” which we’ll discuss in another article.

In his book, Larry says, “This, despite the fact that year after year active managers, as a whole, have lagged the returns of simple benchmarks and the index funds that track them. The excuses for last year’s underperformance vary, and they get recycled every year.”

Source: The Incredible Shrinking Alpha: And What You Can Do to Escape Its Clutches by Larry E Swedroe and Andrew L Berkin

Larry agrees – index investing is a sensible way to invest money.

If the Harvard educated MBAs getting paid $750,000 per year don't get it right more than 90% of the time, what makes you think you will be right, and continue to be right for 40+ years?

Are you better equipped and more informed than these folks? If you're like me, the answer is no.

So why play a game you can't win, when there is one you can, which is just buying an index fund, which a well trained chimpanzee can do? And you'll be beating 90% of the pros to boot.

Why market-cap weighted?

This just means the percentages of the stocks in the fund will match the market. This self-cleanses for winners and weeds out losers as the value of the losing companies fall in the fund.

Why these index funds?

They have a low expense ratio (ER). ERs are fund operating expenses that you pay for. You want this to be as small as possible so your dollars are going to buying the index fund and not funding your broker's next yacht purchase. However, in order to get international exposure, you might even consider funds like VTIAX, FTIHX, or SWISX.

Can I contribute $20,000 into a Roth IRA this year?

No. You can contribute your earned income up to $6,000 per year (in 2022) into your Roth IRA ($6,500 in 2023).

A one time $6,000 investment at the age of 18 would grow to $140,000 dollars by the age of 65 assuming a 7% rate of return.

What if you started at 35?

It would be about $45,000. You lost $100,000 by starting too late. As the Chinese proverb goes – The best time to plant a tree was 20 years ago, and the second best time is now.

What if you contributed $6,000 every year from 18 to 65?

It would be $2,100,000+ (if compounded annually at 7%). And did I mention it's all tax-free? There you go, that's the secret of 35-year-old retirees; they just do the same with their 401k/457b, HSA, and taxable brokerage accounts.

What if you just wanted to be a millionaire?

It would only take about $8.25 a day from the age of 18 to 65. Isn’t that absolutely wild?

Many are turned off by thoughtful, careful investing because they want to get rich quickly. There’s only one thing that’s worse than getting rich slowly – getting rich never.

People today are no different than people from 50 years ago. Everyone wants to live an effortless, wealthy life, and they want it now. However, this is a fantasy. Wealth is built over years. In order to build anything of substance, you must put in substantial time and effort.

The objective has not changed, only the medium. Historically speaking, the mediums were tulip bulbs, pyramid schemes, and pump-and-dump stocks. Today, the medium is cryptocurrency, hedge funds, NFTs, ETFs, and REITs.

Malicious characters will always find a way to separate the unwise from their hard-earned money. It would be prudent to revisit the words of Warren Buffet – “Outstanding long-term results are produced primarily by avoiding dumb decisions, rather than by making brilliant ones.” This is why I will continue to dollar-cost average into low-cost, market-cap weighted index funds for the decades to come.

All of this leads us to a question. How can you get all of the battle tested, tried and true knowledge as quickly as possible? I wrote a book explaining exactly this; it's short, it's cheap, and it's written in plain English. You can find this on the homepage or here.

This is currently sitting at 8 reviews with an average rating of 5 stars. I’d love to hear your thoughts regarding this book if you decide to give it a read. You could buy it on amazon, read it in two hours or slowly over the course of a week, and return it for a full refund. So you can basically get all of the information for free. No pressure either way. You won’t hurt my feelings.

Is there anything you found useful or that I missed above? If so, please leave a comment in the comment box below.

See you on the next one!

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Disclaimer: The article above is an opinion and is for informational/educational purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice. The author has taken care in writing this post but makes no expressed or implied warranty of any kind and assumes no responsibility for errors or omissions. No liability is assumed for incidental or consequential damages in connection with or arising out of the use of this information.