Graduation and first jobs bring many opportunities. New college grads often focus on decorating their apartments, checking out the local watering holes in their new neighborhoods, and adjusting to life at work. But it's never too soon to start thinking about investing.
Investment habits that begin early can help propel individuals toward financial security later in life. If your children or grandchildren are launching into the world of first "real jobs" this summer, now is a good time to encourage them to add investing to their list of new firsts. Here are some talking points to share.
Time Is Your Friend
Recent college grads who start investing now put time and the power of compounding on their side. If regular investing becomes a part of your new grad’s financial routine, it can develop into a lifelong habit that can help them on their path to future financial security. The numbers back this up. For example: If a 20-year old invests $3,000 per year, that can grow to almost $680,000 by age 66, assuming a 6% annual growth rate and no tax. If someone waits until age 35 and starts investing the same $3,000 annually, that will grow to only about $254,000 by age 66.
Be Aggressive on Savings
Although some college grads may have student debt to pay off, these early years of adulthood can be a time with more disposable income. There may not be any mortgage payments, child care payments, children's sports fees, or unexpected health-care costs at this point in their lives. Financial advisors recommend that young adults save and invest as much disposable income as possible, so consider suggesting a goal of 10% to 15% or more from the starting gate.
Take the Free Money
Many employers will match a portion of contributions to 401(k) retirement accounts. Retirement may seem far off, but the earlier young adults start, the easier it can be to reach savings goals. Talk with your new grad and encourage them not to leave free money on the table. Explain how they can allow their money to start working for them. Encourage them to contribute at least enough to retirement accounts to maximize the free match.
Exchange-Traded and Mutual Funds
Many young adults are often busy starting to build their careers and acclimating to a new city. Managing a large portfolio of individual stocks may demand more time than they have right now. Consider pointing your recent grad toward a broad-based diversified stock index mutual fund or exchange-traded fund.
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