I'm a self-made millionaire and the biggest money mistake I've made isn't anything I did - it's what I didn't do

Courtesy Jeff Rose

Jeff Rose.

• Opportunity cost - the investment choices you didn't make - can easily be your biggest money mistakes. That's what happened to me.
• Now, I'm a self-made millionaire, but I would have built wealth much quicker had I opened an investment account in my teens. More specifically, I wish I'd opened a Roth IRA.
• Don't let a lack of knowledge or fear of making a mistake keep you from building wealth. Investing early in life - even in your teens - can be worth hundreds of thousands of dollars to you later on.
• SmartAsset's free tool can help you find a financial adviser to create your own investing plan »

There's a fairly long list of mistakes on my journey to becoming a self-made millionaire.

For example, there was the time I lost $5,000 on a penny stock. I should have known better. There was also a failed business venture that, instead of making me a fortune, ended up costing me $8,000. And during the 2008 stock market crash, I was in a position to buy a bunch of individual stocks that could have earned me 20 times my investment. I didn't.

Then there was the crash-and-burn from failing at real estate investing. I still have nightmares about that one. It might have been the second-biggest financial mistake I've made, but I'd have to get a calculator and crunch some numbers to make that point official.

No, the biggest financial mistake this self-made millionaire made wasn't what I did, but what I didn't do. At least not early enough in my life.

My biggest financial mistake was the years I missed investing

Opportunity cost is that unseen payoff you miss out on because you're busy doing something else. You can think of it as the answer to the question, how much more would I be ahead if I chose a different path? In my own young life, the biggest opportunity cost - or financial mistake - was not opening a Roth IRA when I was 18 or 19 years old.

You might think that seems a bit too young, and perhaps for many people that age, it is. But it wasn't in my case, and that's why it was a major financial mistake. You see, I had the resources to open a Roth IRA when I was just 18 years old. If I had, my climb to millionaire status would have happened quicker and more easily.

Why didn't I? Part of the reason was a lack of knowledge. I simply didn't understand all the benefits of a Roth IRA at the time. What really stopped me, though, was my own self-limiting belief that I didn't have enough money to get started. Probably like a lot of people, I thought I needed tens of thousands of dollars to begin investing. But that wasn't true when I was 18, and it's even less true today. There are many ways and account types you can begin investing with just a few hundred dollars.

I've had my "happily ever after" financial story anyway. That's even though I didn't start investing until I was in my mid-20s. As the saying goes, better late than never. But you don't need to be late.

Why a Roth IRA?

You're probably wondering why I'm specifically focusing on the Roth IRA. Personally, I absolutely love the Roth IRA and everything about it. It's one of the foundational investment accounts to have in just about anyone's portfolio.

Without much effort, I've easily come up with 10 reasons why this is true:

1. A Roth IRA creates a source of tax-free income in retirement. At least some of your retirement funds should be in a Roth IRA because it represents a form of retirement income diversification.
2. The investment earnings in the account grow on a tax deferred (and eventually, tax-free) basis. That removes the tax cost from the investing equation.
3. You can contribute up to $6,000 per year to a Roth IRA, or $7,000 if you're 50 or older.
4. You can participate in a Roth IRA even if you don't have an employer plan at work.
5. But you can also have a Roth IRA in addition to an employer-sponsored retirement plan (subject to income limits).
6. Just like a traditional IRA, a Roth IRA can be held in a self-directed account, not only allowing you to invest the way you want, but also giving you nearly unlimited investment options.
7. A Roth IRA contribution is not tax-deductible. But when you're young and your income is relatively low, a tax deduction is less important.
8. Roth IRAs enable you to withdraw your contributions early, without being subject to either ordinary income tax or the 10% early withdrawal penalty. As a young person, you may need that flexibility.
9. If you do withdraw accumulated investments from your Roth IRA, you'll be exempt from the 10% penalty for certain purposes. Examples include education expenses or up to $10,000 for the purchase of a first home.
10. Unlike employer-sponsored plans, there are no investing rules to meet with a Roth IRA.

I'm certainly not against investing through other vehicles. If you have an employer-sponsored retirement plan at work, or extra funds to plow into a taxable investment account, you should take advantage of either or both. But with all the advantages offered by a Roth IRA, you should have one in your investment mix.

7 years can make a huge difference with a Roth IRA

Let's start with a credible assumption. Whether you begin investing at 18 or 25, you'll probably have all or nearly all of your portfolio invested in stocks. After all, at such a young age, you'll have decades to recover any losses you might sustain in the short run.

And why would an 18- or 25-year-old want bonds, anyway? Based on the S&P 500, the stock market has provided an average annual rate of return of around 10%. Bonds aren't even close.

If you begin investing $6,000 per year in a Roth IRA at age 25, you'll have $156,435 saved by the time you're 40. Out of that, $90,000 will be your contributions, and $66,435 will be investment earnings.

But watch what happens when you begin saving at 18 and how much difference an extra seven years of investing can make: By age 40, you'll have accumulated $305,072. That's represented by $132,000 in contributions, and $170,072 in accumulated investment earnings.

In addition to the fact that the extra seven years of contributions nearly doubles your account value by age 40, a larger percentage of your portfolio will be represented by accumulated investment earnings. By starting at 25, 57.5% of your account value at age 40 will be your investment contributions. But if you start making those contributions at 18, only 43.3% of your account value at 40 will be your contributions.

Another way to look at it is the longer you invest, the bigger the impact investment earnings will have on the size of your portfolio.

Let's look at it from yet another angle. Using the 10% annual return on the S&P 500, the portfolio you begin building at 25 will generate about $15,644 in investment earnings in the next 12 months.

But using the portfolio you began building at 18 will generate $30,507 investment earnings in the next 12 months. That's nearly twice as much as the investment earnings you'll have if you began investing at 25.

Start investing as early as possible - even if you don't plan to be a millionaire

I suppose one of the issues preventing the very young from investing is the expectation that you'll get rich someday. We can add a lack of understanding of the strategies and tactics needed to actually make that happen. All are fully understandable.

But if you're going to get anywhere in life - especially if you'd like to be wealthy someday - you're going to have to take some risks. That doesn't mean doing something crazy, but you will have to lay out a plan. That plan doesn't need to be perfect, but mostly a system that enables you to build wealth methodically.

I've emphasized the Roth IRA in this article, but that's certainly not the only option. You can also choose a traditional IRA, or also a taxable investment account - though there will be tax consequences if you go that route.

The idea is to set the investing foundation as early in life as possible. A Roth IRA is an excellent choice, because it can be started by anyone with earned income, but also because of the tax-free investing angle. And even if it doesn't make you a millionaire by 40, making regular contributions throughout your life will go a long way toward ensuring a comfortable retirement.

I don't spend too much time agonizing over not investing earlier in life. But if I have to identify the biggest mistake this self-made millionaire has made, waiting a few years longer than I needed to is definitely the front runner.

Don't let that happen to you. Begin investing as soon as you're in a financial position to do so, even if it doesn't seem like a perfect plan at the time. In fact, one of the most exciting aspects of building wealth is how much you'll learn as you go forward. But you have to get started before that process begins.

Starting from where you are right now is the very best time.

SmartAsset's free tool can help you find a financial adviser to create your own investing plan »

Jeff Rose is an entrepreneur disguised as a financial adviser, author, and blogger. Jeff is an Iraqi combat veteran who served in the Army National Guard for nine years, including a 17-month deployment to Iraq in 2005. He's best known for his award-winning blog GoodFinancialCents.com and book, "Soldier of Finance: Take Charge of Your Money and Invest in Your Future." He's also the founder of Wealth Hacker Labs, a movement to teach accelerated wealth-building strategies to future generations.

• More savings and retirement coverage
• How to retire early
• The best high-yield savings accounts right now
• The banks with the best CD rates
• When to save money in high-yield savings

Disclosure: This post is brought to you by the Personal Finance Insider team. We occasionally highlight financial products and services that can help you make smarter decisions with your money. We do not give investment advice or encourage you to adopt a certain investment strategy. What you decide to do with your money is up to you. If you take action based on one of our recommendations, we get a small share of the revenue from our commerce partners. This does not influence whether we feature a financial product or service. We operate independently from our advertising sales team.

NOW WATCH: A Georgetown professor explains how Martin Luther King Jr. 'has been severely whitewashed'