Retirement Investment Strategies That 20 Somethings Need Now

I seem to write about retirement a lot these days and frankly I’d say it’s because I am one of them…the retired, that is. From my perspective, it’s pretty easy to see a path leading way back to my youth that is a good one to get safely here. But the problem seems to be always the same, most 20 somethings—and for that matter 30, 40, and even 50 somethings—just never do the work to get where they want and need to be: ready for retirement. That’s why we need to talk about investing for 20 somethings, even if retirement feels like it’s eons away.

There's no better time to start planning for retirement than the beginning of your career. Here are some tips for investing for 20 somethings.

I say it all the time and it is so true: start saving for your retirement as soon as you latch on to your very first job! That means that you should start saving early. Make regular contributions to your employer-sponsored 401(k) plan, and even get their big generous company match.

Given that most Americans feel they need to catch up on their retirement savings, this will keep you ahead of the game. But is there anything else you can do to secure your financial future? The simple answer is yes!

Tips on Investing for 20 Somethings

Here are five strategies on investing for 20 somethings to help guarantee a comfortable adult life and retirement.

Tip 1: Don’t get way ahead of yourself

It’s awesome that you’re thinking about retirement at your age. But, don’t sacrifice your short-term financial security for your long-term plans. You still have a life to live now and it’s not only about when you are a senior citizen no matter what anyone tells you.

Young people should first earn the right to invest. That means you must get a steady job with a consistent income first. Next comes funding your emergency savings in case life happens, which it will every time you least expect it. What happens and how you deal with it grades whether you are really an adult.

If you manage to hold on to your job and the S&P goes down 30%, whether it’s a buying opportunity totally hinges on you having money to invest.

Tip 2: Increase your contributions gradually

Guess what? There’s still more you can do with your company’s 401(k) plan than signing up and getting the company match. The Internal Revenue Service allows you to contribute up to $19,500 a year (currently) and these limits often increase from year to year.

While maxing out a 401(k) account may not be feasible for everyone (only about 18% of millennials consistently maxed out their retirement accounts), start off small and work your way up.

If your employer will match at 5% and you have 10% of your pay going into your 401(k), every six months push it up by 1%. As time goes on keep pushing it up another 1% to the maximum.

Tip 3: Try a Robo-Advisor

First-time investors should consider these advisors, such as Betterment and Wealthfront, both of which offer Roth IRAs (tax-advantaged savings accounts funded by after-tax dollars). The robo-advisors pick portfolios tailored toward your savings goals, while keeping your taxes and fees at a minimum.

To make investing even more effortless, these platforms allow you to automatically transfer funds from your savings or checking account to your investing account each month. They don’t require a minimum balance, but do charge an annual fee (0.25% for digital portfolio management).

But don’t worry: robo doesn’t mean you are going solo. You can still talk to people on the phone. It’s an accessible and affordable way to start investing.

Tip 4: You can invest on your own

Don’t get intimidated. It’s actually easy to invest on your own as long as you stick to a low-cost index fund. Find a fund that tracks the returns of companies on S&P’s 500 index which is made up of the stocks of the 500 largest U.S. companies.

The S&P 500’s track record is also great way for your money to grow. For instance, a 25-year-old who had invested $10,000 in the S&P 500 in 1980 would have made $760,000 by 2018 when they turned 63.

Fee-free trading also has become easier to find among major banks and online trading apps such as Robinhood. Fidelity recently joined the trend, announcing it would eliminate trading commissions for all investments from stocks to exchange-traded stocks on its online platform.

Tip 5: Never panic

During the 2009 recession, many people watched their 401(k) balances plunge as stocks got battered. They panicked and cashed in the remainder of their investments before they could lose any more in value.

Then they learned what a huge mistake that was. Market dips are normal and not the end of the world. In fact, market swoons are a valuable buying opportunity. If you buy when values are low, you stand to earn more when the stock market goes back up. And it always has done just that after a dip, even a big one!

If you don’t touch your investments, the S&P 500 historically has always gone up. Just don’t panic or freak out.

Final Thoughts

Imagine starting out saving for retirement, seeing the growth of your money over time, and knowing that when you retire, you’ll be prepared. When you add in your Social Security benefits and any and all other forms of income you may get at age 60 something, you’ll be able to sleep at night peacefully because you literally had it made!

I say imagine because for too many, that’s all it is. You can be different and make it happen with these strategies and good dedicated common sense to planning your retirement. The only question you face is whether now is the best time to start. Here’s a hint: yes, it is!

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