<p>Here’s a question I am curious to read your responses on: In the current economic climate, where should recent college graduates (or young people in general) look to invest their money to prepare for retirement? Aside from work-related plans. People would generally agree to start saving for retirement as early as possible - but where is our money best put for a long-term goal such as retirement?</p>
<p>Generally I hear to spread your money around, in high-interest savings accounts, stock markets and other possibly “risky” ventures, as well as in other assets (owning properties and other physical valuables that either hold their value or may increase over time). </p>
<p>For a young person, what are some good long-term investments to start looking into that have a reasonably low risk? </p>
<p>Do you have only one or two investments where you put a large amount of your money? Or do you agree that spreading it around in different kinds of investments is the safest thing in this economy? Keep in mind I am asking about people in their early-late 20’s who will (on average) be working another 30-40 years before considering retirement.</p>
<p>Until recently I have only been thinking about saving up for goals that may be attained in the next few years - such as owning a home - but I have not thoroughly considered where to put my money for the “long haul,” and this type of saving has a different strategy than shorter-term goals. Thoughts? Opinions? Advice? </p>
<p>** This is meant to be a general question for people my age, so you can answer in terms of salary range (i.e., how much money you have to put away), rather than directing your advice to me specifically.</p>
<p>If affordable on your salary start putting as much as you can into your retirement plan, especially if you can max out your company contribution. Money Magazine issues (check your local library and online) may offer some ideas for different phases of life. No matter what your age you want a “balanced portfolio”, ie put some in several different kinds of investments. Watch out for various fees. You should discuss with some different financial people to get different ideas and choose one after that. Be aware of broker fees et al. One company to investigate is Fidelity. Managing your own stocks is hard- it can be a full time job. You are fortunate that you can do a lot of online investigation.</p>
<p>IRA, 401k, 403b, and similar plans (traditional or Roth) are best thought of as containers with special US income tax effects, within which most types of investments (stocks, bonds, money market, mutual funds containing these things, etc.) can be put in.</p>
<p>Yes, the library has magazines like Money, Smart Money, Kiplinger’s, etc. as well as personal finance and investment books. Libraries in higher income areas tend to be better stocked with these kinds of magazines and books.</p>
<p>I’m not a financial planner, but based on what I’ve learned, I’d first see if other more pressing issues have been taken care of, eg. emergency funds, high interest credit card debts. </p>
<p>If you still have money for retirement, I’d check if the company has matching 401(k) contributions, and take advantage of that first. IRAs are good too, and if the income level is low, a Roth IRA’s tax free growth makes sense. If the young person wants to play the market, one advantage of a retirement account such as the Roth is that you don’t need to keep track of your cost basis on your annual tax return and pay capital gains taxes on your trades. If the strategy is to be hands off, go with a company that has a lot of options such as Vanguard, and use index funds/ETFs or target date funds where the composition of the fund changes from growth to income as retirement approaches. Then if you decide to do more hands-on management, you can move to other funds/ETFs with specific goals that you’re looking for.</p>
<p>I’m looking into a career shift/returning to school, so the “extra” income to begin considering these options might not come for another 2 - 3+ years. However, even this new path will likely not last forever, so assuming I have 3 or so career/companies changes, I’d like to consider other options in addition to what my employers offer. I don’t think I’m the type of person who will sit with the same employer for 10 years, and I know some companies have stipulations based on how long you’ve been with them for the amount they match.</p>
<p>UCBAlumnus - My town’s library is rather…poor, to say the least, and doesn’t have a whole lot for adults since it is mostly young children that venture there for reading activities. And sadly, my parents and many others in my family have not really begun to try saving for retirement until more recently (many haven’t worked full-time jobs that offer pension plans, either). So I have very little well-informed options for who to talk to about this. I do plan to research (a lot) on my own, but getting an idea of where to start (such as looking into the Roth IRA) is better than cluelessly sifting through random websites on the matter. I will look into online versions of those magazines you mentioned, though, if my library does not carry them. </p>
<p>So it sounds to me, when people say “start saving for retirement early,” what they really mean is to just be smart with your money from the start and keep debt levels low, not to really start “saving for retirement” in the literal sense. I suppose it is just natural to get caught up in having a family, a home, career changes, and not really think about retirement until it starts drawing nearer, at least near enough to realize you have to start planning. I was just curious if anyone here had children who are about to, or have recently graduated college and whether this is ever a topic that comes up, or if it comes up later down the road.</p>
<p>I am surrounded by small towns. I could venture into my college library I suppose, which is almost an hour away. It’s just tough to get out that way with my schedule. I figure I should be able to find a lot of that information online, at least to start learning what each option is and what could work for me.</p>
<p>In today’s employment, mobility, tax climate, and investment possibilities-keep it liquid. </p>
<p>Use to be 3-6months of secure savings for emergencies and unemployment. Told DS to have 6-12months of savings is much better. He has the money in nonqualified accounts (brokerage and index fund co),
taxes negligible ($0.00) because even though the investments are up-they are unrealized and if realized its taxed on LT rates of 15% even though his marginal rate is 25%.</p>
<ol>
<li>IF you sell in with a tax loss, the loss is deductible at your marginal rate. If that loss is within a Roth, you’re stuck with that loss unless you try to dollar cost the investment into a profit. </li>
</ol>
<p>“The first dollar invested is the investment that makes the most money.”
depends if don’t need the money until the investment makes money.
A $1000 invested in whatever average mutual growth fund in 1999 is worth $1000 today, whether that money is in an Roth or in a nonqualified account. The difference is the nonqualified account can be used as collateral where as the qualified account cannot.
You can move money into a qualified account. Its very expensive to move money out of a qualified account, and if you do expect big lossrs.</p>
<p>Pay off student loans if > 4% interest rate. Maybe not if <4% Irate
Pay off revolving debt.
Make donations. Donations > 7% of gross income is deductible to your marginal tax rate. And for the last 12 years, on average minimizing taxes is worth more than investments, See treatise of Warren Buffett on taxes.
Buy life insurance while you still can, and while companies are theoretically making money to take on risk. Life insurance, term, renewable regardless of health, is based on age and health. </p>
<p>What was gospel is questionable. Ask any toobigtofail financial company.</p>
<p>We talk about it with our 25 year old. She has a 401K account with her present employer that she has been contributing to for 3 years. We’ve emphasized how important the compounding effect is when it comes to retirement savings. She has an emergency fund (1st priority) and no debt. The money she puts away now (and doesn’t really miss) will be golden in 40 years.</p>
<p>I’d suggest first getting your match from your 401k, then do a roth to the limit, then go back to the 401k if there is money to do so.</p>
<p>Watch the “loads” very carefully. Choosing an age based retirement fund if you don’t know what to do - ie retiring in 2055. Don’t invest in anything you don’t understand and you don’t need to spread money all over the place.</p>
<p>I’m impressed with the OP. I would guess that there are many 20 somethings who have not even begun to think about the importance of saving for retirement. In fact, I have several siblings who have basically saved nothing and are in their 30’s to 50’s! Scary.</p>
<p>I just read this article today. It’s about a nurse who has only been working since 2007 but he has already earned $250,000 from investing in blue-chip dividend paying stocks. He followed the Millionaire Next Door and reads everything written by Warren Buffett. It’s worth reading this article about him:</p>
<p>1) 6 to 12 month reserve
2) Maximize your 401K contribution (if employer matches first 6%, then put in 6%, that is “free” money). Then if you still have funds available:
3) Maximize Roth IRA contribution ($5K/year I think?). Then if you still have money -
4) Put as much as you can in your company sponsered 401K, while saving for large purchases like a new car or a home.</p>
<p>As a young adult you will most likely not make it to step 3 or 4. Live within your means, don’t carry any credit card debit, ever, pay off your student loans and everytime you get a salary increase over COL, put it in your 401K or RothIRA. </p>
<p>One other thing- if you get married have a discussion on what is important to you both financially. It gets tough to save for retirement or college if one spouse spends money say on gambling or something the other spouse thinks is wasteful. Say $5000 at the vet. For one person that could be an essential expense for the other a waste of money.</p>
<p>You are so wise to begin thinking of saving now! Immediately begin saving at least the amount your company will match in your 401K. The match is free money - they are giving it to you. In the future, whenever you receive a raise in your workplace, consider bumping the amount you are putting into your 401K a percent or two. You will never miss this money in your budget since it wasn’t there before.
Kudos to you! You are already on your way to a comfortable future.</p>
<p>We suggested a Roth IRA to our kids. Even a small contribution now as 20 somethings will add up in the 30 plus years until THEY retire. They will start with small monthly contributions and add to those as time goes on. </p>
<p>The best scenerio would be if they were hired by jobs that had IRA/TSA accounts whereby the employer contributed a portion too. BUT right now, that’s not the case for either of them, so they will both start Roth accounts this year.</p>