I recently came across the personal finance site, Oblivious Investor and was amazed by the author’s story. Mike’s in his twenties and used to work as a financial advisor and tax accountant. He now is an accomplished personal finance author with 6 books based around making finance simple.
Since Mike has the background and training in finance, I asked him some questions about investing as a twenty-something. He was kind enough to answer them and 
tomorrow I’ll be giving away a copy of his book, Investing Made Simple. Come back tomorrow at 9 AM EST to see how you could win Mike’s book.
Here’s the interview:
A: How did you get into writing about personal finance?
M: In the couple years after college, many of my friends were self-employed. At the time, I was working as a tax accountant, so they frequently came to me with tax questions. A little too frequently, actually.
I decided I’d write a short book on the topic of taxes for small business owners. That way, I could just tell them to go buy a copy from Amazon rather than continually asking me questions. It didn’t work. I don’t think any of them bought the book.
What surprised me, however, was that a lot of people (complete strangers!) did buy the book after finding it on Amazon. After just a couple months, I saw that writing could provide a meaningful side income, so I started working on a second book. Since then I’ve written a few more books and started a blog, Oblivious Investor, to help with marketing them. It’s now my full-time job.
A: What’s the book writing process like?
M: There’s lots of outlining to be done at the beginning and lots of editing to be done at the end. But the actual writing is just step-by-step, section-by-section. It’s really not too different from writing blog posts. The key is to not get discouraged at the size of the overall project — just focus on taking it one step at a time.
A: What is your investing advice for an employed twenty-something who has never once thought about money, but wants to get started?
M: First, do some reading. There’s no sense in starting with an investment plan until you know why it’s a good idea to follow that plan. Otherwise, when things go poorly (which will happen from time to time, no matter how good your plan is), you’ll panic and make costly mistakes. You don’t need to be an expert, but you do need to know why you’re doing what you’re doing.
As to the actual specifics, it depends on whether the employer offers a savings plan with a matching program. If there’s a 401(k) match available, enroll in the plan and contribute enough to get the maximum match. If there’s no match to be had, I’d probably suggest starting with a Roth IRA.
As to choosing investments, my suggestion is the same regardless of whether it’s a 401(k) or an IRA:
- Determine an appropriate asset allocation for your goals.
- Look for the lowest-cost funds that will satisfy that allocation.
In most cases, a simple portfolio with just a few low-cost index funds or ETFs is sufficient. Something like:
- A broadly-diversified US stock fund,
- A broadly-diversified international stock fund, and
- A bond fund.
A: Why do so many twenty-somethings avoid investing when the years and compound interest are on their side?
M: Truth be told, most twenty-somethings I know actually did start investing shortly after finishing school. They either enrolled in the 401(k) at their job or opened a Roth IRA on their own. I think our generation is more financially savvy than we get credit for.
Our whole lives we’ve heard stories about the financial mistakes our parents (the Baby Boomers) have made — credit card debt, not saving enough, going all-in on tech stocks in the late 90s, buying huge houses with equally huge mortgages, etc. I think most of us are looking to avoid making the same mistakes.
A: What should the majority of Americans be doing in regards to retirement savings?
M: I’m reluctant to make many suggestions for such a broad, diverse group. About the only things I’d say everybody should be doing are:
- Check your asset allocation to make sure you’re not taking on more risk than you’re comfortable with.
- Look for low-cost funds wherever possible. Expense ratios are excellent predictors of fund performance.
- Make sure you’re saving enough. Don’t assume you can safely withdraw 8% of your portfolio every year during retirement without running out of money.
A: Do you have a day job?
M: Nope. At this point, book sales plus advertising revenue is enough to pay the bills.
A: What’s your goal for Oblivious Investor?
M: Two goals:
1) Provide a counterpoint to the mainstream financial media’s frantic analysis of what’s going on in the stock market each day. For most investors, such short-term movements don’t matter.
2) Make a living while doing something I love — reading and writing about investing and taxation.
A: What do you think about investing in individual stocks?
M: I don’t recommend it in most cases. The investors you’re usually competing against when you buy or sell individual stocks have far more resources than you do. To have a decent chance at reliably outsmarting them, you’d have to be willing to treat it like a full-time job. And even then, success is far from certain.
A: What’s your next book?
M: Retirement Planning Made Simple. As investors get closer to retirement, portfolio management becomes much more tricky. (And mistakes become more costly!) At this point, however, the book is only in the earliest part of the outlining process, so I can’t put a date on when I expect to be finished.
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Thanks to Mike for shedding some light on investing in your twenties.
Make sure to check out his site, Oblivious Investor and remember tomorrow (Saturday) at 9 AM EST I’ll be giving away a copy of Mike’s book, Investing Made Simple.
If you have any questions for Mike about investing, taxes, or writing a book, leave them in the comments and he’ll get back to you.
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Great Interview!
[Reply]
Braden Reply:
June 26th, 2010 at 12:50 am
Wow, this is embarrassing. I just misspelled my own name.
[Reply]
Austin Reply:
June 26th, 2010 at 1:23 pm
Hey, typing’s difficult. Give yourself some credit ;)
Are you related to Mike?
[Reply]