When you’re young, you want to create memories while you embark on your newfound life after being home with parents. Investing for your future may be the last thing on your radar, but it’s easier than you think. And technology is enabling it to be even easier and cheaper than ever before.
Most young adults can save a decent amount for retirement without losing out on the experiences they crave. The trick is simply to get started today and build better habits for the future so that you don’t end up toiling away your best adult years in a job you hate, or working simply because you need to work to survive.
The best time to get started investing is right now.
There’s a saying in investing, “time in the market is better than timing the market.” What this means is that it’s better to invest over a long period of time, rather than trying to pick low points and sell at high points. This is especially true when you’re young and don’t have a lot of money to get started.
Even if you have just $100 to invest, you should consider getting started investing. And there are a lot of benefits to starting early! Here are a few:
1. Even Small Amounts Can Grow A Lot Over Time
Many young adults don’t save for retirement because they don’t think they have enough money to make a difference. But saving early is the most important aspect of building a nest egg, not how much you’re saving.
Saving for retirement is about maximizing compound interest. What exactly is compound interest? Compound interest is defined as interest that is paid on both the principal and on accrued interest. A simple way to think about this is interest that builds on top of itself. Not only do you earn interest on your contributions, you also earn interest on the interest accumulated on your contributions. Over time, this turns into a huge amount of growth.
According to a study from Insured Retirement Institute (IRI) survey, only 24% of baby boomers are confident they will have enough savings to last throughout retirement, down from 36% in 2012. If only they had started earlier, that could be a different number.
Millennials can change that statistic by starting now!
2. Better Risk Tolerance Over The Long Run
Investing is a game of risk and reward. Some assets, like bank certificates of deposit (CDs), are essentially risk free – meaning you can’t lose money. As a result, they don’t earn a lot over time. Equities, on the other hand, are more risky, and they historically return more over time.
As an investor, your age is a big factor that determines the level of risk you can take. People who are younger have more years of earning and growth available, which allow them to take more financial risks by building aggressive portfolios subject to volatile fluctuations.
Later in life, you may favor lower risk investments or risk-free investments, such as bonds and CDs. The last thing you want is a big drop in your portfolio right before you retire.
Set yourself up for success by starting early, investing in equities, and watching your portfolio grow for decades.
It’s Not Your Parent’s Investment Advisor
I was talking to a friend about investing the other day, and he shared how his father told him that he needed an investment advisor, and that he should make all his investments on the phone in consultation with said advisor. This is a very antiquated approach to investing, and it shows how far we’ve come in enabling millennials (and others) to invest easily.
Investment firms are developing tools and technologies at a record pace to meet millennials and other investors where they want to be – online and mobile. Technology allows investors to easily reach their financial goals by using online platforms and receive the latest financial updates and technical analysis. Other platforms allow you to learn, research, and use their tools to complete all of your transactions.
Plus, with this competition, pricing has gone down significantly. Tech startups like Robinhood allow commission-free investing on a range of stocks and other investments. Even seasoned investment firms like Fidelity are offering commission free and zero expense ratio mutual funds – truly free investing.
New Apps And Tools Target Millennials
Investment firms are aware that the younger generation gets most of its information online, through apps, and social media websites. In order to make the process easier and accessible to all, companies are making it easier to trade, review your portfolio, and get investment advice online.
Companies like M1 Finance, Robinhood, WeBull, and more are offering commission free investing online.
Established firms like Fidelity, TD Ameritrade, and Vanguard offer a range of commission free and low expense ratio ETFs and mutual funds.
Then there are the robo-advisors like Betterment and Wealthfront that automate the financial planning process online.
Finally, there are apps like Acorns are making investing automated by helping you take your “spare change” to invest.
Whether you’re just finishing college or already working, you’re still well ahead of the crowd if you start investing now.
Investing early can help you reach your financial goals faster and provide you with a safety net in the future.
When you’re young, time is on your side to start investing.