As a young professional who has moved beyond the month-to-month financial situation of a college student, you are likely looking for ways to invest some of the money you are now earning. You may be tempted to spend your money on superficial items, but investing is an important way to take the money you are making and make it work for you. In fact, over 75% of millennials are already saving for retirement. If you are looking to grow your wealth, investing is a great way to get started. Good investments can compound upon themselves, and over time you may be surprised at just how much money you are seeing in returns.
If you do not have a lot of knowledge about finances, then investing can be confusing. There are so many options out there, all with risks involved, making it difficult to know exactly what you should do with your money. You may be worried that one bad decision will lose you a lot of money, which can feel daunting if you have just started to earn money and don’t feel like you have a safety cushion yet. Below are some tips to get you started in investing and help you make smart decisions about your hard-earned money.
If you don’t feel comfortable investing or saving a larger percentage of your paycheck, start with the amount with which you feel comfortable. It is better to save something than nothing. You can always save or invest more as time goes by. One good rule to follow is to raise your investments or savings each time you get a raise. That way you feel it less.
When you are making your first substantial paycheck, it can feel inordinately risky to invest that money in something like stocks. But if you are only putting your money in a savings account, even with a high-interest rate, you are not going to grow your wealth like you’d probably like to. If you want to see higher returns on your investments, you are going to have to take risks and put at least some of your investments into stocks. You’ve probably heard many horror stories of people who have lost everything in the stock market, but this does not have to be the case for you. If you invest wisely, there will still be risks, but you are not likely to lose everything.
Investing in the stock market can be a great idea, but you have to be careful of how you plan to invest. Do not take all of your money and dump it into companies that you think are doing well, like Apple, Google, or Amazon. Instead, consider index funds and exchange-traded funds. Instead of investing your money in a few big-name stocks, these funds group your money with other investors to buy a wide variety of stocks. If you choose a few different types of these funds, like US companies, international companies, and emerging market companies, then you will have a diversified portfolio. While there are risks involved with these stocks as well, you have better chances than with choosing only a few big-name stocks. Be aware that investing in the stock market is not usually a way to “get rich quick.” In reality, you may have to wait 10 years or more before you begin to see a profit, so the stock market is your best bet for long-term investments.
When saving for retirement, it is better to choose a Roth IRA or Roth 401(k) rather than a traditional IRA or 401(k). The traditional plans will require you to pay taxes later in your retirement when you take out money. The Roth options allow you to pay taxes now, which can be highly beneficial if you are making less money now than you will make in the future. You can lock in your taxes in at a lower rate and you don’t have to pay taxes on the money when you are retired.
Many employers will actually match your investment in a 401(k) or IRA. If your employer gives you this option, then it is a wise decision to invest the maximum amount that you can afford and that your employer will match. This will only grow your investment over time and you will be pleased with the money you have to retire.
Don’t be afraid to get some help. You don’t have to make decisions all on your own and you no longer have to pay exorbitant fees for a financial advisor. There are companies and websites that take a small percentage of what you plan to invest to help you manage your money. This will pay off in the long run, as they can help you make wise choices and you will lose less money.
With a few wise moves, you will be surprised with how your money can grow and how much you can have for your retirement.
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