Start Investing in your Retirement Now
In your 20’s, there’s a lot to look forward to. Maybe you just landed a big job and started your career. Or perhaps you just started your own business.
But while you are focusing on these things, it’s good to look ahead, as well. All that hard work can pay off in a great retirement if you start planning now.
Now is the critical word because when it comes to investing, time is on your side. But it won’t be there forever. So let’s dig in to see why saving for retirement while in your 20’s is the smartest move you can make.
“Money doesn’t grow on trees, ya know.”
How many times have you heard that old saying? Well, it may not grow on trees, but it does grow in a retirement account, thanks to compound interest.
Let’s say you put $1000 in your retirement account. That year it gains 8% interest. Now, you have $1080. If you leave the entire amount in there and it makes another 8%, you’ll have $1,166.
You didn’t lift a finger. Even if you don’t add any extra money, it will continue to grow. That’s compound interest, and it works best when you have plenty of time. You can check out how it works with this handy compound interest calculator.
Everybody makes mistakes in investing. Even Warren Buffett, one of the greatest investors of all time, has made bad investments. But here’s the catch: if you make mistakes early enough, you can recover from them.
Let’s go back to the $1000 from the last paragraph. Suppose, instead of getting 8% interest per year on a stock, it gains nothing. Or worse, what if you lose your entire investment?
Well, it always hurts to lose money, but when you invest in your ’20’s, you still have tons of earning potential. You have plenty of time to save more money and invest it in something that works.
Oh, and those mistakes are not all bad because they pay a surprise dividend.
You grow wise
So, you lost your entire $1000 investment in the last paragraph. That stinks, but you did get something in return: experience.
And the more time you have to gain experience, the better an investor you’ll become. That’s important because you will need time to develop an investing strategy.
For example, if you start investing in individual stocks, you have to decide if you want to be a buy-and-hold type or be more active in your trading.
There are also all the individual investing vehicles to learn. Mutual funds, exchange-traded funds, real estate investment trusts, and individual retirement accounts are just a few of the many ways to grow your nest egg.
But you can’t learn them all overnight, so give yourself the time you need to learn about all the different tools at your disposal.
You get more control over your planning
Even in your 20’s, you’ll want to have a retirement plan. It will help you determine your investment strategy, tools, and even your lifestyle.
Suppose you are interested in the Financial Independence Retire Early (F.I.R.E) movement, where people aim to retire in their 40’s or even their 30’s. In that case, you’ll be much more aggressive in saving and investing than if your timeline is to retire in your 60’s.
Either way, you’ll want a plan. And like everything else in investing, time to reach your goal is going to be one of your most significant resources.
The Rolling Stones may have said it best. Time really is on your side. So start learning all you can, get help from an excellent financial advisor, and get your plan rolling today.