Investing

I built a 7-figure investment portfolio in 10 years: Here's my best wealth-building advice

"Start investing now, even if you're starting small."

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Nikki Dunn is the founder of She Talks Finance.
Courtesy Nikki Dunn

In my early 20s, I decided to dive into the stock market. While I was a big saver, I knew nothing about investing, and the allure of quick profits led me to start by day trading stocks. 

After a few years, I was getting tired of the time commitment and the volatility that came with trading. At this point, I had also started an education business. The company was growing and I realized that, working for myself, I needed to be more strategic about the choices I was making with my money. 

I began working with a CPA who helped me learn about my options for saving on taxes and planning for retirement as an independent business owner. My goals shifted away from wanting to earn a quick profit in the moment to putting as much money into retirement as I could, so I didn't have to worry as much later on. 

I wanted my money to work for me in the markets as long as possible. And for the more immediate future, I wanted to be less tied to a computer and have the flexibility to travel with my husband. So I began to transition away from day trading. In 2015, I stopped entirely and instead started steadily contributing to my long-term retirement accounts. Today, my portfolio is worth seven figures.

Based on what I've learned and what worked for me, here is my best advice. 

Time in the markets beats timing the markets

While there have been some very unique situations lately to make money trading meme stocks, I've learned that trading can be a tough gig over the long run. With trading, there's more room for error, like not properly timing when you buy and sell. This leads to a lot of ups and downs in traders' portfolios. 

The time commitment is also considerable, requiring you to monitor individual stocks, news, and scan for new trading ideas. And after spending thousands of hours watching price charts, I realized this wasn't the best way to spend my time and it didn't align with my definition of freedom anymore.

I discovered that long-term investing is more forgiving, with more consistent returns. If you invest in mutual funds or exchange-traded funds (ETFs), for example, or in individual companies with stable or growing businesses, and then you hold these assets while the businesses flourish, your returns tend to look much better over the long run. 

If you're invested in an S&P 500 index fund, for example, a 10% annual return could help your money grow exponentially with very little work thanks to compound interest and time. All without being glued to your computer screen. 

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Keep your portfolio diversified

Today I have a diversified portfolio of predominantly exchange-traded funds (ETFs). I also invest in individual companies that I think have the potential for long-term growth.

Around 25% of my portfolio is actively invested in higher quality individual stocks, around 70% is passively invested in ETFs, and then I tend to use about 5% for any trading or more speculative bets. This percentage mix can change based on how the market moves, and I usually rebalance as needed.

Depending on your skill set and familiarity with the stock market, I would say a good general rule is to set aside 5% to 10% for trading or anything that is more speculative. Overall, I've learned that great investments take time to grow. 

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Find the investment tools that are right for you

Tax-deferred accounts, like a 401(k) or Traditional IRA, and tax-advantaged accounts, like Roth 401(k) or Roth IRAs, are essential tools to building wealth more efficiently. And utilizing the right retirement accounts for your tax situation can save you thousands of dollars over your lifetime.

When you run your own business, you don't have an employer taking out taxes or putting your contributions into a 401(k) automatically. I had to figure out how to do that on my own when I started my company. And while I had a 401(k) from a previous corporate job, for a long time I was putting more of the money I was earning into trading accounts rather than retirement accounts.

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With some trial and error, I found the right tools for me. I think I've tried just about every self-employment retirement plan available. I started out using a SEP IRA, but then I found a solo 401(k) option that allowed me to put even more money towards my retirement.

If you are working at a 9-to-5, I would also encourage you to explore your options in addition to a traditional employer 401(k). You may find that there are personal IRA options that you qualify for, or other self-employment retirement plans available to you if you have a side hustle, that could help you accomplish your saving and investing goals in a more tailored way. 

Front-load your retirement investing

The more money you can invest up front, the less you have to contribute on the back end. Compound interest does the work for you over time. Front-loading my retirement investing wasn't necessarily about me retiring early. It was more about getting my money working for longer, and giving me more options later.

You want to find the balance between how much you can contribute into retirement accounts and still keeping enough money accessible for bills and emergencies. For me, this was making sure to manage enough of an emergency fund not only for my personal life, but also my business. 

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Every year, I lay out all of my accounts to make sure that I'm not committing too much to one goal over another. I run the numbers based on projected income. I prioritize my personal and the business expenses, and then I see if I have enough money to max out my retirement accounts. 

The last thing I want to do is pull money from my retirement to cover an emergency, and I fortunately haven't needed to do that to this point. It's required some diligent planning, but the peace of mind that it's given me is priceless.

Everyone's definition of financial freedom is different, so everyone has a different "number," or goal that they want to have in the bank by retirement. My best advice is to start investing now, even if you're starting small. No matter where you are today, remember that through the power of compounding and consistent contributions, you can grow your nest egg quicker than you think is possible.

Nikki Dunn is a certified financial planner professional and investor with a passion for helping people learn how to manage their money better. After achieving financial freedom through owning businesses and investing, she created She Talks Finance, a financial education platform. She loves to help people learn about money in a fun, approachable way. She is also a co-host of the "We Talk Money" show, which helps do-it-yourself investors navigate the markets better. 

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