Tweaking Common Advice: Take Risks While You’re Young

A common piece of advice I’ve heard is “Take risks while you’re young.” This is often applied to personal finance, in terms of trying to land a higher-paying job, starting a new business, or pursuing your passion. The thinking goes something like this:

  • The older you are, the more likely you’ll have a spouse or partner that depends on your income, or at least they’ve become accustomed to how it makes their life more comfortable. They may not be supportive of having it disappear while you chase a dream.
  • You’re more likely to have children, who will take up all your free time and you’ll (hopefully) be happy about it.
  • You’re more likely to need to take care of your parents. Simple addition tells us that if you’re in your 30s and your parents had you when they were in their 30s, that means they’re in their 60s or 70s.
  • Basically, as you get older the more likely you’ll have more responsibilities and less time.
  • More responsibility increases the importance of income stability over income potential.
  • Less time means you can’t go on crazy streaks like 100-hour workweeks on your startup (or 60 hours on your side start-up on top of your regular 40 hour/week job).
  • On top of all that, older often means less energy.

As someone now in my mid-30s with a family, I can see the truth in this. Even with a job, I used to be able to spend 40 hours a week doing whatever I wanted. More school on the side. Work on the side. Sell stuff on eBay on the side. Blog on the side. I really miss that extra time.

What is young?
20s? 30s? Am I too old to take risks now? Really, I think it boils down to the fact that you should take risks now rather than later. Whatever age you are now, things will probably only get harder from here.

What kind of risk?
Should a 21-year-old take out a $100,000 loan to get a MBA degree from a lower-tier university? How about $100,000 loan to start a premium cupcake business? To me, these seem like risks that may not pan out and would also leave them burdened in the future.

Again, I think you should risk what “younger” people have more of: time. You should feel free to spend all your time pursuing something potentially awesome. Don’t take out massive loans. You could become a bakery apprentice. Become an expert in something you really enjoy, even if it is something niche. Write that novel. Code that website or iPhone app. Bootstrap a business. You don’t need that much money these days. Take a risk with your time.

Comments

  1. I’ve always thought it was largely a matter of taking risks when you’re young because it gives you more time to recover when there is a setback. More so for investments, but other things, too, I guess.

  2. @ttfitz – That sounds like a line straight from a credit card salesperson’s mouth. “More time to recover” often also means “hole you’ll never get out of” for many people.

    I think Jonathan hit the nail on the head here. Time is “cheap” when you are “young” and have fewer obligations and responsibilities. So your potential loss from a risk is less than when you are “older” and your time is worth more because you have more people who need your time. But (inflation aside) money does not inherently vary like that over your lifetime. Simple example: Spending a month of your free time trying to build a business that eventually fails when you’re 25 is for most people typically much less “expensive” than doing it when you’re 45. But spending $10k on an investment that fails when you’re 25 has pretty much the exact same effect as doing it when you’re 45.

  3. Isn’t it said that youth is wasted on the young?
    I totally agree that with a full time job, wife and two small kids, I no longer have ANY free time. You spend it all taking care of the kiddos when you get home from work and when you finally get them to bed you’re too pooped to do anything else but veg for a bit and go to bed. I’m trying to finish my B.S. and it is MUCH harder than before I had kids. I really wish I would’ve done it sooner.

  4. Never fear taking a risk. Yes, as you age and have more responsibilities and such but you can’t let that stop you. Far too many people around 30 and on fall into just wanting security and settling in just about every aspect of life. Go for it…whatever it may be

  5. @Scott – either you are misunderstanding what I said, or I’m misunderstanding you. I am simply referring to how much risk a person should take on in investing depends in a great deal on their age. Every asset allocation plan I’ve ever seen is based on that idea – stocks are generally riskier, so the older you are, the less you should be invested in them.

    As you say, a simple example: a 20-year-old in 2007 could much better risk having all his investments be in the stock market and take the 50% hit, where a 60-year-old would really be hurt by such a scheme.

  6. Disagree. I’m nearing 40 and married with kids, houses, etc. Both my wife and I have solid jobs, with director/vp level salaries. I’m about to chuck my job and all that goes with it for a shot to help some former coworkers on a new software company. We can survive on my wife’s income. If the company, which is growing, does pan out, that puts us in a fantastic place (plus I’m working with people who are damn good at what they do). If it fails, I’ll still have an impressive title and the experience of taking a legit shot at something great.

    I would much rather care about my work and make nothing over taking a big salary and feeling like I work for thieves.

  7. I’m with brkf on this. I have worked into my mid 30s now to a decent salary will be much more comfortable taking a strategic career/financial risk now that I have some solid savings. When I really think about it, I’m happy I spent my 20s, when I didn’t know anything about business, just working for people and saving money. Learn on someone else’s dime if you can.

    Of course, I don’t have kids or a mortgage and it’s always been my plan to avoid those things, but I know that’s fairly unusual. I have just as much free time now as I ever have, if not more.

  8. @Scott: Actually, $10k when you’re 25 is worth a lot more than $10k at 45 due to the effects of compounding and opportunity costs, not to mention proportion of net worth and proportion of income in the average lifetime trajectory.

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