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Far too many people cruise through their 20s spending like the well is bottomless. And then they’re shocked when they find this not only to be untrue, but their road to retirement is also looking grim. Yes, already. And while we don’t want to paint a completely depressing picture, we do want to wake those 20-somethings up and get them on the investment map. If you’re at that age and don’t have an idea of how to get started, we can help.
Read on for the best investments to make when you are in your 20s.
Use Your Employer’s Resources
If your employer offers a 401(k) plan to save for retirement, you absolutely need to take advantage of that. This is particularly true if your company offers matching contributions. A 401(k) has huge tax advantages, as you can contribute to it directly from your paycheck before taxes are taken out. When it comes to employee matches, go for the gold. By this we mean that you should contribute enough to get the maximum or at least shoot for that as your ultimate goal. Those who don’t have a 401(k) offered through your employer should go with a Roth IRA. This also offers tax advantages, albeit different ones than the 401(k). While the 401(k) allows you a tax break on contributions, the Roth IRA doesn’t tax you when you pull the money out for retirement.
Gradually Increase Your Savings
This isn’t an investment tip, per se, but we want to talk about it anyway, as far too many people save the same amount of money each month. While saving anything is obviously good, you want to make sure you are increasing this amount over time to get yourself closer to retirement. As Nerd Wallet notes, the math makes it clear. In taking your 401(k) contributions as an example, “if you also increase your savings rate by half of every 3% annual raise, your balance at age 65 would be closer to $3 million.”
Embrace the Stock Market
Millennials have a reputation for being risk averse, which means many of them avoid the stock market like the plague. There is something to be said for the old adage, “With no risk comes no reward.” If you’re less of an entrepreneur and more of a 9-to-5’er, this might be a bit off-putting. However, any well-informed investor will tell you that investments in the stock market generally have a larger yield over, say, a three-year period than in a simple savings account … even with the risk. If you’re still apprehensive, start small and consider hiring a financial expert to help make your investment decisions. You can also use dollardaddy.org for insight.
Automate Your Investments
Again, this isn’t a tip about where to put your money, per se, but this is important nonetheless. If you rely on yourself to put money into various savings and investment accounts each month, you will fail. It’s simply human nature to find another place for that money, whether it be for a down payment on a new car or at the grocery store. To keep the temptation at bay and actually save money, automate your investments. You can always make adjustments on these if you notice your cash flow is a bit low.
Consider a Target Date Mutual Fund
This is a mix of stocks, bonds, and cash that is aptly named, as it is mean for investing until a certain year. As this article by the balance notes, “As the target date approaches, the fund manager will gradually decrease market risk by shifting assets out of stocks and into bonds and cash, which is what an individual investor would do manually themselves. Therefore, target-date mutual funds are a type of ‘set it and forget it’ investment.” To do this, you probably want to have at least an idea of when you want to (and can!) retire. Of course, the point is to gradually increase the amount of money you’re contributing to this fund, especially if you hope to retire sooner rather than later.
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Your twenties can still be about living it up while simultaneously saving for the later years, and it doesn’t even have to feel like a constant financial pinch either. Enlist any or all of these investment tips while you are in your 20s and watch your nest egg flourish.
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