> Even if the market roars, an investor can only make
> so much with only $20,000. Even in a strong bull market,
> they can make 20% to 30% a year, which is insignificant
> to a young person.
Insignificant? I would be out-of-my-mind ecstatic at 20% returns. 20% of $20000 is $4000, which is (for most young adults) equivalent to several months of wages.
However, it's also dishonest to imply that 20% is at all realistic. 3-4% per year is more likely over the long term, and most young adults will see better returns from using the $20000 to pay off credit cards or student loans. Remember: $100 to pay off a 15% credit card is guaranteed 15% returns!
> Putting money in the market means living with uncertainty.
> Young people do not want to deal with that kind of stress.
What uncertainty? I don't care how much my stocks are worth today or tomorrow, because I don't plan to sell them for years (or decades). Some prudence is wise (such as not buying at the top of a bubble), but the only people I've seen get stressed out about the market are usually 1) invested in some dodgy get-rich-quick scheme or 2) planning to retire in a year or two.
> Someone in their twenties should focus on their education
> and other investments that will advance their career.
> Altucher suggests taking classes, brainstorming ideas,
> starting a website and attending networking events.
None of these require $20000, unless "taking classes" means "attending Harvard" or "networking events" means "week-long drug-fueled orgies".
> It is also not a bad idea to have $20,000 cash in the
> bank. It can provide a safety net and peace of mind
> during a time when many are losing their jobs.
$1000? Definitely. $2000? OK, if you live in an expensive area. $20000? Waste of capital. Savings accounts have very low interest rates right now -- better to have your money working for you than being slowly eroded via inflation.
The best time to buy into a market is when the crazies are out in force. With all the goldbugs panting into their paper bags, and old white folks on medicare demonstrating against "socialism", there's probably no better time to buy high-quality stocks. Conversely, anything looking "bubbly" (gold, Apple, salesforce) is not worth touching with a 10-foot pole.
I think Altucher was under the assumption that high-interest loans and other debt were already taken care of, since he was talking about investing in the market vs investing in yourself.
I don't think it's a bad idea to have an emergency fund of up to 6-8 months of living expenses, especially in this economy. Once that's taken care of, I don't agree that the capital left over should be put in the market vs in yourself. $20,000 is not a lot of capital, and taking classes, building a web site, marketing it, etc will quickly use that up, but the upside and benefits are much higher.
Even you said it yourself, at 2-3% realistic (and 20-30% at the highest level), investing in the market is not really worth it.
$20000 is a lot of capital; I could probably live for a year on that, and I don't live in a cheap location. A young adult (low medical expenses, no children, no mortgage) living in a less-populated area (north pacific, midwest, south) could probably stretch that to two or even three years, if they find a decent deal on an apartment.
Classes at the local community college run about $50 per quarter, plus books. Building a website is free, and hosting it nearly so. Marketing doesn't have to mean full-page ads in the New York Times -- a few humble links on popular community sites can go a long way.
I think there's a certain group mentality on News.YC which builds up the idea of startups as hugely capital-intensive operations, requiring hundreds of thousands in capital and slick marketing campaigns across the web. This mentality is harmful. Every startup I've ever heard of has either 1) started small and built slowly or 2) flamed out in a hissing ball of comedy. There's no doubt thousands I've not heard of, which quietly curled up in a corner and died after spending all their investments on fancy chairs and television commercials.
If your objective is to stretch the $20K out over a long while through reducing your living expenses, I don't doubt you could make it last if clever enough.
However, if your objective is to turn that $20K into a much higher sum and gain much higher % returns (which I think Altucher was referring to), given the age range (20's), and the amount of capital, it makes sense to parlay that into knowledge and experience.
However, it's also dishonest to imply that 20% is at all realistic. 3-4% per year is more likely over the long term, and most young adults will see better returns from using the $20000 to pay off credit cards or student loans. Remember: $100 to pay off a 15% credit card is guaranteed 15% returns!
What uncertainty? I don't care how much my stocks are worth today or tomorrow, because I don't plan to sell them for years (or decades). Some prudence is wise (such as not buying at the top of a bubble), but the only people I've seen get stressed out about the market are usually 1) invested in some dodgy get-rich-quick scheme or 2) planning to retire in a year or two. None of these require $20000, unless "taking classes" means "attending Harvard" or "networking events" means "week-long drug-fueled orgies". $1000? Definitely. $2000? OK, if you live in an expensive area. $20000? Waste of capital. Savings accounts have very low interest rates right now -- better to have your money working for you than being slowly eroded via inflation.The best time to buy into a market is when the crazies are out in force. With all the goldbugs panting into their paper bags, and old white folks on medicare demonstrating against "socialism", there's probably no better time to buy high-quality stocks. Conversely, anything looking "bubbly" (gold, Apple, salesforce) is not worth touching with a 10-foot pole.