If you are a “millennial” – a member of the age cohort born anywhere from the early 1980s to the late 1990s – then you’re still in the early chapters of your career, so it may be a stretch for you to envision the end of it. But since you do have so many years until you retire, you’ve got the luxury of putting time on your side as you save and plan for retirement.
Here are some suggestions for making the best use of that time:
Invest early – and often
Even if you are at the very beginning of your career, make investing a priority. At first, you might only be able to contribute a small amount each month, but something is far better than nothing – and after a year or so, you might be surprised at how much you’ve actually put away.
Take advantage of your employer’s retirement plan
If your employer offers a 401(k) or similar plan, contribute as much as you can afford. At the least, put in enough to earn your employer’s match, if one is offered. Your contributions can lower your taxable income, and your earnings can grow on a tax-deferred basis.
Invest more as your earnings increase
As your career advances, and your earnings rise, you’ll want to increase your contributions to your 401(k) or similar plan. And if you ever “max out” on your annual 401(k) contributions (the limits change over time), you can probably still contribute to another tax-advantaged retirement plan, such as a traditional or Roth IRA.
Thus far, we’ve only discussed, in general terms, how much and how often you should invest. But it’s obviously just as important to think about the type of investments you own. And at this stage of your life, you need an investment mix that provides you with ample opportunities for growth. Historically, stocks and stock-based vehicles provide greater growth potential than other investments, such as government securities, corporate bonds and certificates of deposit (CDs). Of course, stocks will rise and fall in price, sometimes dramatically. But with decades ahead of you, you do have time to overcome short-term losses. And you may be able to reduce the effects of market volatility by spreading your dollars among many different stock-based investments, along with a reasonable percentage of bonds and other, more conservative securities.
Here’s something else to consider: Many millennials want more from their investments than just good performance – they also want their money to make a difference in the world. This interest in “impact” investing (also known as “socially responsible” investing) has led some of your peers to screen out companies or industries they believe have a negative impact on society in favor of other businesses that are viewed as contributing to a more sustainable world. If this viewpoint resonates with you, then you may want to explore these types of investment opportunities with a financial professional.
But most importantly, keep on investing throughout your life. As a millennial, you’ve got plenty of the one asset that can never be replaced: time. Use it wisely.