Investing for a NOOB
For many young adults, the word “investments” comes across as some sort of boring activity where you put money into some weird system, hoping it will eventually grow. A lot of people fresh out of college want to start their lives, but not become a full on grown up with a mortgage and stock portfolio. They want to get a job and have fun with their money, and they certainly do not want to squirrel it away. But beginning investments when you’re young can really pay off in the future. Sure that delayed gratification can be tough, but the truth of the matter is that if you want to reach those dreams of retiring on a beach or sending your kids to an Ivy League college you must begin your financial planning now.
A lot of people entering real life adulthood may have no idea where to start when it comes to investing. I was raised in a paycheck-to-paycheck sort of environment, so investing (or even saving for that matter) seemed so foreign to me. However, after a few bad choices as an 18 year old, I entered my mid twenties ready to repair the damage and begin my journey to financial adulthood. For those of you that were taught financial responsibility, some of these tips may seem like a no brainer. But regardless of your situation, we can all learn a thing or two about growing our money now into something great in the future.
Before you actually start putting money into any sort of portfolio, you will want to determine how much you can actually afford to save right now. If you are just starting your career and still have student loan payments and other new bills, you may want to consider putting aside a little less at first. Most financial advisors will recommend putting away about 10% of each paycheck. If that amount seems like a stretch, try a little less. You can always increase that amount when you are a little more financially secure.
Once you have determined how much you can actually afford to save without going broke, you will want to take a look at different investment firms. There are a plethora of institutions out there that want your money, and it is important to do research before choosing your firm. If your work place offers any sort of retirement savings plan, it is a good idea to start there. Many employers offer matching contributions and other bonuses. If you end of leaving your job at any point, many employers offer the ability to transfer your retirement savings.
The biggest asset that young adults have is time. If you start saving at 25, by the age of retirement you will have had 40 years of accruing savings. To get the most bang for your buck, look into stock mutual funds. These are diverse portfolios that will invest your money into several different companies. Groups like Vanguard and American Funds can help you set up the perfect mutual fund for your situation, and can often set up automatic deductions from your bank account towards your investment.
Some financial advisers recommend having some sort of real estate investment, as property values tend to increase over time. However, as our recent recession showed, the real estate market can be volatile. Many young people opt to buy a starter home, rehab it a bit, and then sell in order to upgrade to a larger house when their families start to expand. Depending on your location, real estate can either be a winner or a headache. Take a look at city planning and development; if your neighborhood is going to be gentrified in five years, you may be able to buy low and sell high. If your area is more economically depressed, the real estate market could stagnate.
If you’re a young person beginning to start a family, you will want to start consider college savings immediately. Some people think it is a waste of time to start saving for their baby’s college fund when they are only 3 months old, but as I mentioned before, time is money. The most common type of college savings plan is called a 529 Plan, where individuals can contribute money with tax-free growth. However, with the price of tuition rising every year, parents may want to consider an Independent 529 Plan. This plan differs in that it allows parents to lock in current tuition rates to several different colleges and universities. However, not every school is included in this program so it’s important to keep that in mind when signing up.
The investment and savings sector of the financial industry is vast and can be overwhelming. With so many different products and programs out there, it can be hard to know where to start. But with a little homework and a determination of your future goals, you can find the perfect plan for you. Whether looking to set aside a little cash for the future or trying to fund a child’s education, investing is a must for young people as time is money.