Finance & Investment Tips We’d Give Our Younger Selves
- \ Gerard Gruber
- July 1, 2021
For younger people, the demands of starting out in life can be overwhelming. Finding the right career path, working for job advancement, paying the bills, all while trying to maintain a healthy work-life...
For younger people, the demands of starting out in life can be overwhelming. Finding the right career path, working for job advancement, paying the bills, all while trying to maintain a healthy work-life balance, are just some of the priorities people need to juggle. It’s no surprise then that most people under the age of 30 have yet to start a serious investment plan—because it’s not yet a priority and there will be time for that later.
You can be sure that millions of people in the generations that came before would tell you differently. Many wish they could go back in time and start over. Hindsight is 20/20, but in the realm of investing for the future, it can be priceless. If we had the chance to go back in time to provide investment tips to our younger selves, they would include the following:
Invest Early and Often
When you’re young, time is your most valuable asset. But it is a waning asset. With each day that passes without investing towards your goals, the cost of your goals increases. For example, if you are 25 years old and your goal is to accumulate a million dollars by the time you’re 60, it would require monthly investments of $600, earning an average 7 percent average return. If you wait until age 35 to start investing, it will require more than double that. You may think it’s okay to wait because your earnings will increase. But so will your expenses. It will never be cheaper to invest for your future than right now.
Bonus Tip: You can turn that $1 million into $2 million or more by increasing your monthly investments as your earnings increase. You should shoot for 15 percent of your income as a baseline monthly contribution.
Don’t Try to Time the Market
Investing in the stock market can be scary. Many investors hate losing their money in the stock market more than they love making it, so when they think the time is right, they pull their money out with the expectation they can go back in at a more favorable time. The problem is, no one, not even professional investors, can time the market with any level of consistency. When investors try, they invariably sell amid a steep market decline and then buy well after the market recovers. The result? They sell low and buy high, which is a recipe for disaster.
Instead, develop a thoughtful long-term investment strategy with proper diversification and stick with it. It’s vital to remember that following every bear market, a bull market follows with higher and more enduring returns.
Bonus Tip: It’s okay in certain circumstances to move in and out of specific market sectors, but think long-term with your core investments—about 60 percent of your portfolio. However, when moving in and out of funds or stocks, make sure to understand the difference in tax consequences between short-term and long-term capital gains.
Diversify Your Taxes
You may think it’s way too early to think about what taxes you will owe in retirement, but it’s not. It’s essential to contribute to your retirement plan through work, especially to the extent your employer matches your contribution. But, at retirement, the government will own 25 to 35% of your 401(k) plan or IRA because you funded it with pre-tax dollars. If you use a ROTH IRA for at least a portion of your retirement funds, you will receive the income entirely tax-free, which can significantly boost your retirement income.
Bonus Tip: Roth IRA withdrawals are not counted toward taxes you could owe on your Social Security benefit or required minimum withdrawals at age 72—both of which could seriously impact your retirement income.
Don’t Wait to Buy Life Insurance
Sure, you’re young and healthy, and the last thing you want or need to think about is life insurance. Just know this, life insurance will never be as cheap as it is right now for you. The cost of life insurance increases with age, and it can spike if you ever develop a health condition. You are going to need it eventually. Why not lock in the lowest possible price? If you’re already married, life insurance should be mandatory.
Bonus Tip: Some types of life insurance can be a very effective retirement funding vehicle with tax-free earnings growth and tax-free withdrawals—another good way to diversify your taxes in retirement.
Don’t Try to Go it Alone
Investing can be complicated, and it is sometimes scary, which makes investors do things they regret, such as trying to time the market or chase performance. Both are behavioral mistakes that can lead to disastrous results.
The value of a good financial advisor is to provide expert guidance based on your objectives and risk profile. More importantly, it is to be your investment coach, keeping you from making costly mistakes and on track to achieving your goals.
There are so many other tips I would give my younger self, but for the space provided here, these would have been a good start. If I could add just one more, it would be not to procrastinate because procrastination is truly the killer of dreams.
My name is Gerard Gruber and I am The Retirementalist. I help successful individuals and families do retirement planning right—with straight-forward, no-nonsense planning advice that works to help make retirement dreams possible. We cover all the bases to limit liability and improve potential returns so you can spend less time Googling retirement planning options and more time doing the things that actually make you happy.
If you’re ready to get down to business with your retirement plans, I encourage you to reach out. You can schedule a call directly through my site, call the office at 203-454-3377, or email us at info@harborwest.com. We look forward to meeting you.