Kevin O’Leary of “Shark Tank” says people should think of investing with a diverse portfolio as a key part of their retirement planning.
Many people think of investing as a rich person’s game, but it should be considered a vital component of anyone’s financial planning. O’Leary encourages people to think of investing as a form of retirement planning.
“There’s a difference between saving and investing,” O’Leary said. “Right now, savings accounts give about 0.2 percent interest. Inflation is close to 6.5, so you’re basically being taxed at over six percent in buying power. You’re losing money each year.”
Smart investing from an early age can bring much higher and more stable returns. “Even if you have an average income and you have the discipline to put money into an index like the S&P 500, over your lifetime you will amass.” Markets may be volatile but have shown over long periods of time to bring stable returns. “Markets go up and down, but in the long term, they have continued for hundreds of years to provide around six to eight percent return compounded, including dividends. You’ll end up with well over $1 million in the bank when you retire at 65.”
A key part of anybody’s investing portfolio today is cryptocurrency, something investors should take seriously and invest in smartly, O’Leary said. “There’s a lot of debate about the merits of cryptocurrencies,” he said. “The best way to get your head around it is think about it this way: Bitcoin is not a coin, it’s software. You have to treat it as if you’re investing in Microsoft or Google.”
O’Leary believes many people miss out on investing because they aren’t managing their income smartly and therefore don’t believe they have the money to invest. “People tend to not have that discipline and they don’t start at a young age because we’ve done a poor job of financial literacy in this country,” he said. “When you buy goods or services that you don’t need, you’re essentially killing money. You’re turning it into ghost money. When you kill that money, it can’t compound. It can’t be invested. You’d spend it on something that you’re going to throw out 36 months later.”
The best way to assess your financial position is to perform a self-audit. “You look at all your sources of income over a 90-day period: your job, your tips, your side hustle, your gifts from other people, whatever it is that brought in income over a three-month period. Then on another piece of paper with a pencil — you don’t need technology — you simply look at all the expenditures you had during that period: the rent, your credit card bills, your car payments, whatever it is that you’re spending cash on during that 90-day period. You will be stunned to find out that you are spending more than you’re bringing in, even when you’re wealthy.”
O’Leary has invested in services and apps that make financial planning easy. “There’s so many different apps on the market that help you do this on a robo-basis.” Investing apps can also help investors manage the diversity of their portfolio easily, O’Leary said. “I never let a sector become more than 20 percent of my portfolio, and I never let a stock become more than five percent,” he said. “For the majority of people, particularly those in their early twenties, it’s way better to use an app which you can connect to your bank account, transfer 10 percent of your paycheck and let the app do the diversification for you.”
A credit card by and another service O’Leary invested in, is specifically designed for paying rent to help young people build their credit score. “I’m always looking for innovations like that to help people with their finances.”