You’ve probably heard it numerous times – the younger you are when you start saving for the future, the better off your financial stability will be. The question that still lingers for many, however, is just to go about this, and what to do if you are starting later than what is considered ideal.
More Than a Savings Habit
The ability to save money – putting off the immediate wants for the good of your future needs – is often more challenging than one might think. Perhaps it’s because young investors feel that they have decades and decades yet before they really need to worry about financial security and actually drawing from those savings and investments.
Saving allows you to pay off high interest rate loans (such as student or car loans) and ensures that when you transition from one place of employment to another (which will likely happen) that you have a safety cushion for when things don’t go quite as planned.
For millennials, saving is not the only required component to a robust financial portfolio. Investing a fair portion of that money is also a necessary element. While saving money allows for you to pay off student loan debts and make sure that you are protected by an available emergency fund, the nest egg really starts to bloom when a portion of those saved dollars can go towards diversified investments.
5 Elements to Better Investing
In order to move from just indiscriminately saving money to wisely saving, spending, and investing, remember these five elements for better investing.
Paying Attention to the Changing Economy
As you can see, one of the common threads within these elements is the reality that the economy changes over time, and that your saving and investment strategies must do so as well. The following are examples of the changes and innovations that have been seen in the industry in recent decades, and what they indicate for the future.
Investing Wisely for the Future
Trends show us that stocks are important elements of investment portfolios for millennials. When it comes to investing wisely for your future, however, the first place you should really begin is your place of employment.
Although you can pull your money out of a Roth IRA in certain circumstances, Dave doesn’t recommend doing this. If you pull the money out before you hit age 59 1/2, you will most likely face fees for taking it out early. So, make sure you can afford to invest in a Roth IRA.
Make this as simple as possible by having a set amount withdrawn from your bank account and put into your Roth IRA each month. You won’t even feel like you’re missing the money since you never saw it to begin with. Basically, put the money in and forget about it. It’s very simple to set one up.
Dave Ramsey recommends mutual funds for your employer-sponsored retirement savings and your IRAs. Divide your investments equally between each of these four types of funds:
Choose A shares (front end load) and funds that are at least five years old. They should have a solid track record of acceptable returns within their fund category.
If your risk tolerance is low, which means you have a shorter time to keep your money invested, put less than 25% in aggressive growth or consider adding a “Balanced” fund to the four types of funds suggested.
There is an old saying that reads. “Don’t put all your eggs in one basket.” This is especially true when it comes to your financial nest egg. Be sure that your portfolio is diversified, and that it serves your short-term and long-term goals. Don’t make knee-jerk reactions to changes in the economic landscape as history generally shows that leaving your funds during a sudden downturn is a safer decision than pulling out because of financial fear. In actuality, some of the best investments are made when the economy is still in a recovery mode.
There is a lot of information to learn for beginner investors, but creating plans, learning the terms that are unique to investing, and diversifying your investments will give you the best options for building that solid financial future.