I was 12 when I bought my first stock. My portfolio is beating my 401(k)

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Every now and then I get notifications from E*TRADE about dividends or tax documents. I usually ignore them.

But a couple of weeks ago I clicked the notification. I was stunned when I looked at my portfolio– my overall gains were not only positive but close to double digits. 

I don’t check this account often because I started it when I was just 12 years old. I have just over $2,000 invested in it, so I care a lot more about the accounts that hold the bulk of my investments, my 401(k), and an investment account I started after I graduated college.

Yet my E*TRADE portfolio currently is outperforming those, which, unfortunately, are in the red these days. 

When I first discovered that I was angry. I graduated from an undergraduate business school and I cover personal finance and investing for a living only to have the portfolio I started in middle school beat my portfolio that I’ll one day live off in retirement.  

But the more I think about it, I’m quite comforted that 12-year-old me is outperforming ‘grownup’ me. 

Why I started investing at 12

The first stock I purchased was General Electric because my grandfather, who was an accountant, walked me through the profit and loss statements and told me it was a good buy. I didn’t know much about investing besides the fact that owning a stock meant I owned a tiny sliver of a company and if it did well, I’d make some money and if it didn’t, I’d lose money. 

At that time, making $100 was a big deal. But losing $100 thankfully wouldn’t put me out on the street or cause me to miss meals because, well, I was a kid and I had parents to cushion any investment losses.

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As I got older and raised more investing capital via my meager wages and tips from working as a summer camp counselor as well as a short stint selling vintage handbags (full disclosure, they were mostly my mom’s) on eBay. I decided it was time to diversify my portfolio i.e., own other stocks besides GE.  

My dad helped me start a custodial trading account with E*TRADE. Every time I was interested in buying a stock with my money, I was required to make my case to him on why I thought it was a good buy. He’d approve the trade and I’d shake his hand and say, “Pleasure doing business with you.” 

My strategy was simple– I didn’t invest in anything I couldn’t understand after reading up on how the company makes money. I started researching publicly traded companies that I interacted with the most (think Procter & Gamble, Johnson & Johnson, Microsoft, and Apple).

But those stocks were trading at more than $50 a share around 2012 and I preferred to own more than just three or four shares of a company. So, I researched their competitors and their competitors’ competitors by sifting through countless analyst reports and news articles, often from the vinyl seats on the bus to school. 

Eventually, I built a portfolio that skewed heavily toward biotech companies, specifically those involved in cancer research, and companies that manufactured parts used in iPhones. 

Why my 401(k) is sliding

My 401(k) and personal investment account are a lot less straightforward. If you were to pick an asset I own in either portfolio and ask me to explain why it’s a good investment to make, I’d probably have to improvise a response.

For instance, most of my 401(k) portfolio is concentrated in a target date retirement fund. This essentially means I’m paying Fidelity a relatively small fee to select stocks and bonds to trade for me with a 2060 retirement year and my risk tolerance in mind.  

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(Financial advisors often recommend investing in a target date retirement fund as opposed to trading individual stocks on your own in your 401(k) because it provides a good level of diversification and allows you to put your investments on autopilot.) 

While I probably should take the time to understand all the assets in my 401(k) it makes total sense that it along with my other investment portfolios is underperforming my E*TRADE portfolio. 

Leading up to and during the now bear market, the most common response I’ve received from investment advisors I interview for stories on what people should do with their investments when stocks are nosediving is to remain calm and refrain from panic selling.

The justification they offer is that over time if you look at the S&P 500 or any major stock market index historically, they tend to go up because short-term swings smooth out. So if you have a long-term investment horizon, your investments are less vulnerable to bear markets and the market risks during a given time. 

The fact that the portfolio I started at 12 is outperforming the portfolios I started about three years ago is a testament to that wisdom. And so I remind myself that brighter days are ahead when I work up the courage to glance at my returns these days. 

PS: I cannot emphasize how important it is to start investing as soon as possible. Take it from a former 12-year-old chief investment officer.

Elisabeth Buchwald is a personal finance and markets correspondent for USA TODAY. You can follow her on Twitter @BuchElisabeth and sign up for our Daily Money newsletter here