How YOU Should INVEST $20,000 | Ask Mr. Wonderful #6 | Kevin O'Leary Answers Your Business Questions

Hi Kevin, my question is, what should I do with the 21,000 in my bank account? I'm only 20, and I have 21,000 because of a parent passing away when I was younger.

Well, it's definitely time for another session of Ask Mr. Wonderful! I got dozens of fantastic questions from you, so let's get right at it. I was wondering if you had any thoughts on how I should invest it and grow it so that I have a nice-sized savings account after college. Also, what's your opinion on insurance? Messrs, the rates vary, but you can't lose money.

Thanks for your time and have a great day! Yeah, first of all, I'm very sad to hear about the passing of your parents at such a young age. That said, however, I think you're really thinking ahead. That's very smart!

$21,000— you want to put that to work. I prefer these days using ETFs— exchange-traded funds— and here's why: These days, most online brokers will let you set up an account with no fees, which is fantastic because we really want to reduce our fees if we can.

So, you set up one of those, and then you want the $21,000. If you're, you know, you're young— you're 20— so generally speaking, the older you get, the more you want to put in more conservative investments like fixed income, like bonds, something like that, or these, you know, these guaranteed certificates of deposit, which aren't great in my view, because you're only making about 2%. But that's not bad if you're just saving money.

But you can get ETFs that are basically a basket of very short-term government bonds that yield about 1.9% to 2.1%. So the key is all of these services provide you with information about which ETFs to buy. I like ETFs— they're transparent, they're low fee, they're very liquid; you can buy and sell them.

So I would buy something like the SPY, which is the entire market. It's very inexpensive. You get the whole, you know, Standard & Poor's 500 stocks that make up the largest market cap companies in the world, basically, and then maybe you get 50% in that, and then another 40% in a couple of ETFs that are just short-duration government bonds and short-duration corporate credits. Again, these are available, and you— I always say ask an advisor because you're going to get one for free on these online services. You can just text them, and they'll give you an answer.

Say, look, I want to be sort of 50% in equities, inexpensive ETFs, and maybe 40% in short-duration government bonds and short-duration corporate debt, investment-grade; that's triple B, and then 10% cash. Most of these provide a cash account, too, which has yield.

So then all the money's going to work! It'll be volatile; stocks will go up and down. But over time, because you're so young, I think, you know, an average from the past, you're gonna make 6-7% a year on average on the equities and maybe 2 or 3% on the debt, and it'll grow. It'll be ready for you when you retire. And don't forget to add to it; you got to add to it! Take 10% of your salaries, that's what I always say.

Thank you for that one! Let's go to our next question.

Thanks, Mr. Wonderful, for taking my question. The greatest technical innovations have usually been met with fierce opposition from large corporate competitive interests. Innovators like Nikola Tesla come to mind. What is your advice to innovators on how to confront or avoid similar opposition?

So, innovation is disruption. Whenever you have a Tesla or somebody that's trying to change the world by going to all-electric cars, you're gonna piss somebody off because maybe you're building gas-driven cars or maybe you're from an already existing industry. Disruption is always met with resistance. That always happens, but that's how we advance.

I mean, it's really great when things keep moving forward, and I think I owned a Tesla. Now, I was very skeptical. My son works at Tesla, and he's beginning to learn his craft. He's very interested in how the future is gonna look. It sounds like you are too. My advice to people that want to be Mavericks is put your blinders on. Focus on what you want to achieve and don't listen to all the noise. That noise is horrific and just really, really bad, and it's always going to be eating at you.

But you've got to stay focused on the goal. I was taught that years ago by a mentor, and it's absolutely true. Stay focused! Don't let distractors bother you; don't let them get you down. Invariably, you're going to be kicked to the ground as a maverick or an entrepreneur or anybody who's trying to achieve their own freedom, but you've got to get up and keep going. That's my advice! Great question, though. I like that a lot. These are very thoughtful questions. It's terrific!

Let's see what we've got next.

Hello, Mr. Wonderful! My name is Justin, and I'm 26 years old. One year ago, I started a construction and development company with no loans or investors. So far, it's done very well, and just in the last six months, we have had 1.5 million dollars in revenue, with well over $200,000 in net profit after paying myself.

We have incredible growth slotted for next year based on signed contracts. My issue is, I'm feeling guilty paying myself so early in the company's life. After hearing the Sharks' and other entrepreneurs' stories, I just want your opinion on when it is okay to start giving yourself a salary.

Thanks, Mr. Wonderful. Justin, you're a rock star, my friend! Good for you! That's absolutely spectacular! That's what it takes— the guts to get out there and start. I'm really excited for you!

Now look, I got some advice here, okay? Number one, there's nothing wrong with paying yourself, particularly from what I'm listening to you can afford it. But the key to that is you're taking it out of the company and investing it in something else. That's completely different. That, Justin, is the concept of diversification.

So you put it into an ETF, where you put it into the stock market, you put it into bonds, but it has nothing to do with your construction business. Because what you find in life is you get too concentrated and you leave all the money in the business, and something happens— believe me, in life, poop happens— you're wiped out. You don't want that to happen. You're starting your diversification now.

So let's say you pull out $50,000. You basically have to live off it, but if you could keep 10% or 15% of what you're taking out and invest it in something completely different, like a portfolio of stocks and bonds, that's how you get wealthy long term. But I love that entrepreneurial spirit! You are a rock star— absolutely fantastic! Clearly, you're very focused on what you're doing, and many others can learn from what Justin just said. I mean, he's focused on business, and he did it without any cash.

You sold your business? Spectacular! You know it makes me feel great to hear that kind of thing. And for all the others of you listening, you've got to be like Justin. If you really have that entrepreneurial spirit in your heart, you go and become a Justin. It’s absolutely great! I love that one. Thank you, Justin! Terrific!

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I hope you get what you need with Mr. Wonderful, because I'm answering questions. Let's go to Gavin here.

Hey, Mr. Wonderful! I'm 16 years old, and I'm an aspiring entrepreneur. I think I have a good idea for a tech startup, but the problem is that I don't know how to code. I'm afraid that the need to hire developers will push away all potential investors. Should I take the time to learn to code over the next couple of years, or should I go ahead and start anyways? Thank you; any response would be appreciated.

Gavin, you don't have to be a coder to be an entrepreneur. The key is you've got to find coders who are gonna work with you and for you. You're doing a startup; find a great coder! Because look, it's an extreme talent. You know, if you're good at coding, you're good at coding. If you're good as an entrepreneur, good as a manager, you’re good at that. That sounds like what you are.

So you have a vision for a business; you find a great coder to lead the team, and you give that person, that man or woman's, some equity. They become effectively your partner if they believe in your vision. That's how all the great companies were started. That's how Steve Jobs started Apple. Think about it! He found a fantastic engineer and worked with them. The two of them built that business to the largest company on earth today.

Look, there's nothing wrong with not being a coder, and if you're probably not going to be able to— it's kind of like a half something you were born with. You really have to have an unusual mind to be a coder. That's what I've learned. But I've hired hundreds of coders in my day at the Learning Company. We used to create software; I was a marketing person, and I had to have coders to make Reader Rabbit, Carmen Sandiego, and products like that.

You have to understand what you're good at and focus on that, and I think it sounds like you're gonna be terrific as a manager anyway. Enjoy that journey. Great question!

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