Young people should start investing for their future as soon as possible–most likely when they get their first real job. Students working for spending money or living expenses while pursuing a degree may not be in a position to begin saving for retirement. Once you start your post-education career, it’s likely time to get started.
A person’s earliest years of investment can be the most impactful, which is good since those early investments tend to be smaller than later investments. This is primarily due to compound growth. If you start putting money into a 401(k) at 22, those initial dollars would have more than 40 years to grow by the time you (hypothetically) retire at age 67.
For example, a $100 investment with a 10 percent rate of return would be worth $4,526 in 40 years. Even if your early years of retirement savings are modest, they will likely be significantly more than $100. Those early dollars have much more growth potential than the dollars you’re investing into your 401(k) or IRA in your 40s, 50s or 60s.
That doesn’t mean those later dollars aren’t important, or that there’s no hope for accumulating wealth if you don’t start investing until later in your life. If you didn’t start retirement savings in earnest until your later years, there may still be strategies that can help you build up a nest egg. Alternatively, there are many strategies you can use to lower your expenses in retirement and make your money go further.
Do You Have a Soon-to-Be or Recent College Grad in Your Life?
Parents with young adult children may, understandably, have some healthy parental concern about their child’s savings habits. Young people, especially those with student loans or other debts, might not feel like they have the financial bandwidth to start saving.
One of the great things about modern 401(k)s or IRAs is how hands off and unobtrusive they can be. Most people have many daily, weekly and monthly expenses they hardly even think about. They might get coffee every morning, have a few streaming services on auto renewal or go out after work for drinks with friends or brunch on the weekend.
A conservative retirement saving deduction that’s automatically pulled out of their regular paychecks will likely be a drop in the bucket compared to all those disposable income expenses. If you’re a young person on an entry-level wage, you may want to seriously consider calculating and tracking your expenses. You may discover ways to make room for a moderate retirement savings budget.
How Can You Invest in Stocks as a Young Person?
There are a lot of trendy apps that allow people to buy stocks or cryptocurrencies. These apps are particularly popular among young people. Unfortunately, many of these users treat this type of investment more like gambling than actually saving for their future.
Young professionals serious about saving for retirement should strongly consider using traditional tax-advantaged retirement saving plans, like employer-sponsored 401(k)s or self-directed IRAs. These plans can minimize the tax impact of retirement investment, which can be great for young people who are on a tight budget.
Many 401(k) investment options are also known quantities and professionally managed. A professionally managed 401(k) has a fairly stable window of risk. There are higher risk mutual fund or ETF investment options that have the potential to offer more rapid growth than conservative alternatives, but they’re managed by reputable financial experts, not amateur investing enthusiasts on Reddit or YouTube.
How to Invest in Real Estate
Purchasing a home in the Phoenix metropolitan area is particularly difficult for young people as of 2022. The housing market is extraordinarily tight thanks to a significant shortage of inventory. This means many homes are simply beyond the reach of first-time homebuyers.
However, real estate is historically a good store of inflation-adjusted wealth. Building equity in property with your monthly housing expenditures is a far better move for a young person’s financial future than throwing money away on rent.
Some parents, if they have the resources, may be inclined to help their children purchase their first home. The earlier a young person can own where they live, the better it will be for their future. Although some people may have to make some budgetary sacrifices to swing home ownership, it’s likely a good long-term choice. Plus, with the rate at which rents in Phoenix are increasing, there may not be a drastic difference between rental costs and mortgage costs for young, first-time homebuyers.
Get Help with Retirement Savings
Fullerton Financial Planning helps people who are at or near retirement manage their money. However, there are no age restrictions on our services. If you want to invest your money to ensure you’re getting the most out of it in your future, our team would be happy to help. Call us at 623-974-0300 to schedule an appointment.
