The best ways to invest for the youth

You’re never too young to invest.

Most of us are just in it to bulk up our savings for retirement, make a little extra money on the side, or even just beat inflation.

In a lot of ways, this decade of your life represents an era of carefree wonder, the last decade you’ll have before you take on the traditional roles and responsibilities of other, older adults like your parents.

But, if you do things right, your 20’s offer more than a time to explore – they offer the chance to set yourself up for life. While investing in your 20’s may sound boring, starting young is easily the best way to get ahead.

Young investors today who wish to begin a savings plan face a bewildering array of investment options. There are not only thousands of products and services to choose from, there are almost as many different firms and vendors that market them in various capacities. Fortunately, deciding which types of investments are best is not as hard as it may seem if you’re a young person in today’s world. Finding the right answer begins with examining what you want to get out of your money both now and in the future.

Here are some ways to plan a secure and established future.

Invest in yourself.

No matter what happens with the stock market or the price of bitcoin, there is one area of your life where you have total control. “The #1 place you have total control with your investments is in yourself,” says Colorado financial advisor Matthew Jackson of Solid Wealth Advisors.

Jackson suggest investing in your personal, professional, and financial growth in whatever ways you see fit. Because investing in your work ethic, skill set, or wealth of knowledge could be the best investment you’ll ever make.

“Read as many books as you can and attend conferences that support your growth,” says Jackson. “More importantly, be sure to apply the best advice to your daily life.  Few things can land you an increase in pay or new opportunity quicker than highly developing your skills.”

When you invest in yourself, you simply cannot lose. If you’re in your 20’s, it’s still not too late to go back to school, earn an important certification that could advance your career, or start over in an industry you’ve always admired.

Build a portfolio

Sitting on your money may seem like a safe option, but making smart investments can help your savings grow faster. Consider speaking with a financial adviser to discuss investment options and think about your immediate and future goals. Assessing your financial situation and preparing a plan puts you in control of your financial future. Reassess your plan on a yearly basis.

Think about insurance

Buying insurance can be a good way to ensure financial stability if something unexpectedly goes south. Home or tenant insurance for example can help in the event of a flood; getting rear-ended won’t seem as bad if you’ve got an appropriate auto plan in place for your car, and missing work for a few weeks in the case of a medical emergency won’t be as hard to swallow if you have medical coverage. These payments can cushion the blow and prevent more costly expenditures so do your research and figure out what’s right for your set of circumstances.

Buying a car

Make sure your big purchases are well thought out purchases. Buying a car will be one of the most important decisions you can make, so you’ll want to invest wisely. These rides are built to empower the drive and push past the norm.

Saving for Retirement

If you are young, then your greatest financial asset is time. At this point in your life, your primary investment objective for your long-term savings should be growth. Investors in their 20s will have least 40 years over which to accumulate retirement savings. Historical data clearly shows that common stock and real estate are the only two asset classes that have grown faster than the rate of inflation over time. This means that most or all of your long-term savings should probably be placed in some form of equities, such as individual common stocks and stock mutual funds, and perhaps real estate, either in the form of a personal residence or a mutual fund that invests in real estate holdings. It is imperative that you are able to increase your purchasing power in your retirement savings over the course of your life, because you will need every ounce of it that you can muster after you stop working. 

Of course, IRAs and employer-sponsored retirement plans are the best places to start when saving for retirementEmployer-sponsored plans often provide matching contributions, and this can give your retirement savings a tremendous boost; a 50% match on the first 5% of your contributions can result in tens of thousands of extra dollars in your pocket at retirement. Most financial experts tell young people to use a Roth IRA instead of a traditional IRA because of the tax-free withdrawals. Roth features are also available in many qualified plans such as 401(k) plans, and these may also be superior to traditional tax-deferred options that are taxable upon withdrawal at retirement. Ultimately, the combination of tax-free growth coupled with the superior returns posted by equities is virtually impossible to beat over time.

Buying a Home

Traditional financial wisdom has usually dictated that a house is one of the best investments you can buy, but whether or not this is true depends upon several variables. The duration of your residence and the current housing market will factor heavily into this issue, as will the current interest rate environment, rental prices and your personal financial situation. If you plan on living in one place for less than five years, then it is probably cheaper to rent in most cases, because, mathematically speaking, it usually takes at least five to seven years to accumulate enough equity in a home to justify buying one versus renting. 

Saving for College

If you are still trying to get through school or have not yet started, then there are several other vehicles for you to consider socking money into:

529 Plans – Every state has this type of college savings plan that allows you to put money away until you begin your higher education. The funds can be allocated between various investment choices and will grow tax-free until they are withdrawn to pay for qualified higher education expenses. The contribution limits for these plans are quite high and they can also provide gift and estate tax savings for wealthy donors looking to reduce their taxable estates.

Coverdell Educational Savings Accounts – This type of college savings account is another option for those who want to take a more self-directed approach to choosing their investments. The annual contribution limit is currently $2,000 per year, but it may still be a viable alternative if you want to purchase a specific investment that is not offered inside a 529 Plan.

U.S. Savings Bonds – These are yet another alternative to consider for conservative investors who don’t want to risk their principal. The interest that they earn is also tax-free as long as it is used for higher education expenses.

Short-Term Investments

The alternatives for your short-term cash, such as an emergency fund, are pretty much the same regardless of your age. Money market funds, savings accounts and short-term CDs can all provide safety and liquidity for your idle cash. The amount that you keep in these investments will depend on your personal financial situation, but most experts recommend keeping at least enough to cover three to six months of living expenses.

Automate your investments, then learn to live on less.

No matter where you are in your personal finance journey, one of the best steps you can take is automating your investments so they can take care of themselves.

Setting up an automated savings plan will help condition yourself to save consistently all while paying yourself first without having to decide between delayed gratification and instant gratification,” says financial advisor Anthony T. Reynolds of Coretegic Capital.

For young people in their 20’s, the best – and easiest – way to automate investments is to sign up for a work-sponsored 401(k) plan and have the funds deducted from payroll every month. However, you can also set up automatic investments in a brokerage account or a traditional high-yield savings account.

Once you make all your investments automatic, it’s a lot easier to learn to live on less. It’s also a lot easier to build real wealth when you’ve made saving and investing a priority instead of an afterthought.

“The Bottom Line”

The most important decision that you can make as a young person is to get into the habit of saving regularly. What you invest in matters less than the fact that you have decided to invest. The right investments for you are going to depend largely upon your personal investment objectives, risk tolerance and time horizon.

The bottom line: If you can get into the habit of saving and investing automatically during your 20’s, you’ll never have to worry about money or retirement savings again.

by Israt Yasmin, The Blogging Connection

One thought on “The best ways to invest for the youth

Comments are closed.