Graduation for your success, congratulations. You are about to turn this page into a new chapter – whether you continue your studies or start your career. I want to focus on a real life skill that will serve you well throughout your life – how to invest your money. You can start today with graduation gift checks and your first paycheck if you enter the workshop.
Invest early. If you do, time will be your greatest ally. Let me use a case study to show the point. Suppose Will starts saving for retirement at the age of 22 years. He invests 10,000 10,000 a year for 10 years and earns 8% annually. He then stopped contributing. His classmate Connor waits until he is 32 to start saving for retirement, contributes 10,000 10,000 per year for the next 30 years and earns the same 8% return.
Who has more money at the age of 62 when they are ready to retire? The answer is Will. His 100 100,000 contribution rose to 6 1.6 million, while Connor’s 300 300,000 contribution reached 2 1.2 million. Connor invested another $ 200,000 and ended up with 400,000 less! *
Time and composite energy are remarkable. As Albert Einstein put it, “Compound interest is the eighth wonder of the world. He who understands, earns it … He who does not understand, pays it. (Which introductory speech is done without a pithy quote or two?)
Invest regularly. An easy way to build wealth over time is to invest regularly. If you join your company’s retirement plan, you will do so automatically by deducting regular salary allowances. You can set up your own automated investment program by setting up a Roth IRA, investing in a mutual fund or ETF of your choice, and setting up regular electronic transfers from your bank account. If you invest about $ 115 per week, you can earn a maximum contribution limit of $ 6,000 this year.
In addition to ensuring you consistently save, automated investments allow you to take advantage of the dollar-cost average (DCA). With DCA you can lower your average share price by purchasing investments at different times, as prices rise and fall. DCA only works if you hold it through the good market and the bad. It does not protect you from falling market losses or guarantee profits, but it is a prudent and practical way to invest.
Be balanced and diverse. Balance will serve you well in life and investment. Equilibrium means ownership of different types of investments – US and international stocks, US and international bonds and money market instruments. With balance you will reduce the risk, because asset classes usually do not rise and fall at the same time. In any year, for example, bonds can generate positive returns that help offset losses from the stock.
Diversity is also important for a sound portfolio. Diversification means spreading your money across stocks and bonds from different companies, different sectors and different countries. The ideal vehicle for diversification is a broad-based mutual fund and ETF, which significantly reduces the risk of a personal security or sector damaging your portfolio. Simply put, it’s not “putting all your eggs in one basket”. You can consolidate your own portfolio of funds or buy a single fund solution, such as a balanced fund or goal-to-date fund.
Be disciplined. Once you have established your investment program, you need discipline to sustain it in the long run. You will face the instability of the stock market and the street facing the bear market or 3. You will be exposed to new, overnight rich products and wealth class siren songs. Tune in to all that noise. Even keeping an emotional kill will give you the determination and perspective to stay on course.
Be aware of the cost. There are all investment costs including product costs and taxes. Keeping your costs low gives you the opportunity to add more money to your account. 401 (k) Sheltering your money in tax-exempt accounts, such as plans and IRAs, allows your savings to be tax-free. There’s an old Wall Street max: Buy low and sell high. I advise you to keep your costs low and your savings rate high.
A final word of advice: live below your means. If you spend more than you earn, you will not be able to achieve long-term investment success.
What I have offered you here today is just a bite from the word More straightforward about investing. I encourage you to read the full volume and learn about investing. As Benjamin Franklin put it, “Investing in knowledge pays the best interest.”
Thanks and best wishes.
* This is a hypothetical scenario for illustrative purposes only. The average annual return is not guaranteed and does not reflect the actual investment results.