Investing Vs. College

Investing Vs. College

Let’s talk about investing vs. college. If there’s one opinion that gets me a lot of criticism, it’s my opinion about better things to invest in than a college degree. Now I’m not bashing college. I have a lot of respect for college graduates who have worked hard in school.. The world needs educated workers. BUT, I cringe when I hear people say that the best way to achieve FINANCIAL PROSPERITY is going to college….especially on borrowed money.Investing Vs. College

Not All Degrees Are Created Equal….

Obviously, there are college graduates who get paid extremely well. Attorneys, accountants, doctors, pharmacists, etc. But let’s be honest…..a Bachelors Degree in Old English Literature probably isn’t going to get you a high paying job, unless maybe you can land a good teaching gig.

College generally works when your goal is to become a highly paid expert.  The more valuable your skill, the more you get paid. But even with their high salaries, I will say that it’s harder to become wealthy working as a highly paid professional than it is by investing what you would have paid in tuition.

Compounding Returns….

Let’s say you go to school and become a lawyer. And let’s say within 5 years you paid off your school loans and are making $200,000.00 a year. Because you have chosen to become a highly active worker, you don’t have the time to manage your investments. And so all you have is your mutual fund based investments which averages about 6%.

Let’s say you were an aggressive saver and put away $50,000.00 a year. If you invest for 40 years at 6% ROI you’ll have about $ 8.2 Million. Not too shabby.

Now let’s say you’re the black sheep of the family, and you scrape up $10,000.00 of your own money because you didn’t make it into any schools. But you love investing, and read a few books on the stock market. Let’s say all of your studying allows you to average about 12% in your portfolio. If you work really hard, and put away $10,000.00 a year at 12% ROI, in 40 years you would have $8.6 million.

Make sure you read that closely. A guy can barely scrape up $10k a year can beat a guy who saves $50K a year simply by upping the ROI from 6% to 12%.

But wait, it gets better! What happens if you start investing in real estate? Maybe you get pretty good at figuring out how to acquire and rental properties. Let’s say you start picking up properties that average about 10% ROI. In other words, a $100,000.00 property generates about $10,000.00 a month after taxes. But let’s say that you take out a mortgage on these properties so that you’re deals are 75% leveraged.. Now you’re generating about $10,000.00 on a $25,000.00 cash investment giving you an average cash-on-cash return of approximately 40%!

It’s all in the ROI

High salaries definitely help getting rich. But they aren’t the most important factor. Even a small nest egg can surpass a large one when it is more effectively invested. Meanwhile, many college graduates aren’t even making higher salaries compared to their blue collar counterparts. Perhaps we should start realizing that college is a way to make a living. But investing effectively can be what gives you your life back.

 

 

About The Author

herbertkoehler

I am a college drop out who found my passion as an investor. I love the many facets of finance, investing, and business. But even more than that, I love sharing what I learn with others.

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