Everyone seems to be talking about retiring while you’re only 25 years old, which seems like an eternity away.
You’ve already started saving early by following the advice. Your regular payments to the 401(k) plan offered by your work are sizable enough to qualify for the company’s hefty match.
You’re ahead of the game considering that the majority of Americans believe they need to save more for retirement. But what more can you do to safeguard your financial future?
These five techniques can be used by 20-somethings right now to assist ensure a comfortable adult life and retirement.
First advice: Don’t get impatient.
You’re excellent for considering retirement at your age. But Douglas A. Boneparth, president of financial planning firm Bone Fide Wealth, advises against forgoing short-term financial security in favor of your long-term goals.
He advises young people to “gain the right to invest” first. That implies that you must first secure a reliable source of income. Funding your emergency fund is the next step because, believe it or not, life will happen.
This may sound contradictory, especially in a strong economy, but according to Boneparth, having a reliable work and emergency funds will make all the difference in tough times.
He claims that if the S&P drops by 30% while you keep your job, it’s a great time to invest. But whether you have money to invest actually makes a difference.
2. Gradually increase your contributions.
What’s this? Even after enrolling and receiving the business match, there are still more things you may do with your employer’s 401(k). You are permitted to contribute up to $19,000 this year by the Internal Revenue Service. These restrictions frequently go up each year.
Only 18% of millennials consistently maxed out their retirement accounts, so maxing out a 401(k) account might not be an option for everyone. Erin Lowry, author of “Broke Millennial: Stop Scraping By and Get Your Financial Life Together,” advises starting small and working your way up.
“Push it up by 1% every six months if [your employer] will match at 5% and you have 10% coming into your 401k,” advises Lowry. You can gradually push yourself to your limits if you continuously pushing the value up by 1%.
3. Use a robo-advisor.
Jessica Moorhouse, presenter of the Mo’ Money Podcast, made the error of investing in expensive mutual funds when she first started out investing. But she doesn’t regret it now that she has discovered robo-advisors, which make investing simpler.
These advisors, like Betterment and Wealthfront, which both provide Roth IRAs, tax-advantaged savings accounts financed with after-tax funds, should be taken into consideration by first-time investors. The robo-advisors choose portfolios that are specifically geared toward your savings objectives while minimizing your taxes and expenses.
These systems give you the option to automatically transfer money from your savings or checking account to your investment account once a month, which makes investing even easier. There is no minimum balance requirement, however they might impose an annual fee. Betterment levies a 0.25% fee.
But don’t worry—robo doesn’t always imply alone.
Phone conversations are still possible, according to Moorhouse. It’s a convenient and inexpensive method to get started investing.
Tip 4: You can make your own investments.
Avoid being intimidated. As long as you stick to inexpensive index funds, investing on your own is quite simple, according to Morgan Stanley financial counselor Christopher Zappy. Find one that monitors the performance of the 500 largest U.S. company stocks that make up the Standard & Poor’s 500 index, which has a wide base.
They are pretty well varied, according to Zappy.
The track record of the S&P 500 is another excellent method for your money to increase. For instance, a 25-year-old who put $10,000 into the S&P 500 in 1980 would have made $760,000 by the time they were 63 in 2018, according to this calculation.
According to Zappy, it is now simpler to identify large banks and online trading platforms like Robinhood that offer fee-free trading. Recently, Fidelity announced it would stop charging trading costs for all investments made on its web platform, including stocks and exchange-traded funds.
5. Never lose your cool.
Moorhouse recalls how friends of her parents’ watched their 401k balances plummet during the 2009 recession as the stock market suffered. She claimed that they cashed in the remaining of their investments out of panic in order to prevent more value losses.
She discovered that the acquaintances of her parents erred greatly. Market declines were common and nothing to be alarmed about. Market gyrations are, in fact, a great time to buy. If you purchase when prices are low, you’ll be in a better position to profit when the market recovers.
The S&P 500 has consistently increased throughout the years if you don’t touch your investments, according to Moorhouse. Just don’t touch it, and keep your cool.