A financially independent 32-year-old who grew up in a cash-strapped household shares the simple but life-changing money advice he received from a high school teacher

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• Erik Smolinski started saving money as early as 12, when he got his first job.
• Thanks to advice from a high school teacher, he put his savings to work.
• He primarily does derivative investing but anyone can start investing passively to build wealth.

Erik Smolinski got his first job splitting wood.

He was about 12 years old when he began working to “create a different financial outcome going forward,” after witnessing his mother work two jobs to support him and his brother.

Throughout middle and high school, he continued to work odd jobs, such as selling Christmas trees and moving shale. He saved every penny he earned, believing that it would be enough to improve his financial situation.

Smolinski didn’t understand compound interest or the concept of putting money to work at the time.

“I never heard anybody talk about investing in my family before,” he told me. “I had no idea what it was.” Until one of his high school teachers encouraged him to look into it: “He saw that I was working a bunch and was like, ‘What are you doing with the money that you’re making?'”

Smolinski went to the school library, picked up a couple of books, and began learning about basic investing concepts after being encouraged by his teacher, who was also his junior ROTC instructor.

He then began purchasing stocks. He specifically purchased what he was familiar with and enjoyed. For example, because he thought the iPod was “really cool,” he purchased Apple. He also recalls purchasing Netflix and Amazon stock.

That evolved into derivative trading, which he took more seriously in college and has been doing for more than a decade.

Smolinski, who spent six years in the Marine Corps after college, also owns residential and commercial real estate and is exploring angel investing. He considers himself financially independent at the age of 32 and has a seven-figure net worth, which Insider confirmed by inspecting screenshots of his trading account.

He would not have started investing as early as he did if it hadn’t been for the encouragement of his teacher.

Investing your money to create long-term wealth

Smolinski primarily invests in derivatives, which are extremely risky and not suitable for everyone.

He’s had success: Since 2007, his first year trading stocks, he’s only had two negative years, both of which were his first two.

“I lost about 1.1% in 2007 and then I lost 4.2% in 2008,” he told me. “Since then, my lowest return has been 13.78% in 2018.”

Between 2018 and 2022, he returned 24.6% on average, as evidenced by screenshots of his summary statements. Over the same time period, the S&P 500 index gained about 12% on average. 2013 was his best year, with a 52% return.

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Smolinski said he spent a lot of time early in his career researching and experimenting with options strategies, and as a result, he has a very detailed trading plan and log. He believes that having both documents is “essential” if you plan to trade actively.

Passive investing is typically recommended by experts as a long-term, wealth-building strategy for the average investor, and Smolinski agrees: “I genuinely believe for the vast majority of people, that’s probably the right answer.” But as I began to realize how much better I could perform, it became a no-brainer for me.”

Passive investing, the inverse of what Smolinski does, is a long-term strategy that entails purchasing and holding a diverse mix of assets. The goal is to compete with, not outperform, the market. While it is unlikely to produce large short-term gains, it is less risky and volatile than active investing.

Purchasing an index fund is one of the most popular passive investing strategies.

An index fund is essentially a stock basket that represents the entire market. For example, the S&P 500 index fund invests in 500 industry-leading US companies, so when you buy this index fund, you’re buying a small piece of companies like Apple, Microsoft, and Amazon. The broad diversification reduces the risk of massive losses from single stocks. Because they are passively managed, these funds typically have low management fees.

Insider spoke with a few investors who have grown their wealth through index investing.

Brennan and Erin Schlagbaum, for example, went from being deeply in debt to having a net worth of more than a million dollars. Vanguard Total Stock Market Index Fund (VTSAX), Vanguard Total International Stock Index Fund (VTIAX), and Vanguard Emerging Markets Stock Index Fund (VEMAX) hold more than 95% of their stock market money.

Chloé Daniels, who saved over $200,000 in 2.5 years and is on track to retire early, began investing with index funds.

“The idea of investing terrified me,” she said early in her career. “I used to think that investing was only for smart people.” It’s only for experienced professionals. That isn’t for me.” However, through trial and error, she discovered that investing in index funds is simple and effective.

Smolinski concluded, “there are a lot of ways to make money in the stock market,” and it is up to the individual investor to decide how they want to invest. The most important thing is to get started.