Investing Advice for New College Graduates – The Secret to Decades of Growth
May 1, 2008
What investing advantage do you have that thousands of other people only dream about? As a recent college graduate this advantage puts you in a position where you could make thousands, or even hundreds of thousands of dollars, from investing over the course of your life.
The sad thing is that many people in your shoes ignore this advantage and squander away this opportunity until much later in life. Would you like to know what this enormous advantage is? If I tell you, do you promise to make use of it?
This advantage is no big secret. It’s one of those things that the older you get, the more you realize it’s benefits. The thing is, that by the time you really understand it’s value most people have already lost years of valuable time. Oops, I let it slip. Somewhere hidden in that last sentence is your huge advantage, can you guess what it is? Okay, I’ll say it again, this time there’ll be no mistaking it:
“TIME”
You have time on your side. Money you invest right now will have decades of compounded growth. As a recent college graduate you’ll probably enjoy the most financial flexibility you’ll have of any period in your life. Although you likely have student loans to contend with, you’re limited financial responsibilities will probably give you enough disposable income to get your investments rolling.
You’re fortunate because time is one of the most important ingredients in anyone’s investing forecast and you have a lot of it. The more time you have to save money, the more it can grow and that can mean significant returns on your investment for the future.
Investing Example
Assume you don’t start saving now, believing you have plenty of time later in life to save. You need a big chunk of money at age 50, and start saving at 40, so you have ten years to save. Let’s say you invest $100 a month for that 10 years earning a 6.5% return (here’s hoping that you do much more than this…) At 6.5 percent, with no initial deposit, in ten years time, you’ll have $16,840 in your savings account.
Now consider a different scenario, instead of waiting, you start investing now so you have 25 years worth of investment time. With the same $100 a month, no initial deposit and a 6.5 percent interest rate, you’ll have well over $75,800 in your account by the time you’re 50. Hopefully you’ll be saving more than $100 a month and be earning higher rate of return but you have to admit, the difference between $16,840 and $75,800 is pretty big.
Reasons to Start Investing Right Now
Pensions and Social Security won’t be there to help you. Social Security may not be around at all, and if it is, it likely won’t provide the amount of money you need to live on in retirement.
A 401k, especially one that has employee matching, is invested before taxes. Your invested income has years to grow and compound before taking a tax hit. Taken together with money contributed by employee matching programs, a 401k is one of the best ways to save for your future. You can tap into it later for your first down payment on a home or as a safety measure for hardships.
You can be more aggressive when you are younger. Since you have a longer time frame for your money to grow, you can afford higher risk investments that should yield higher returns. If they end up losing you money, there are still plenty of years to make up for the loss.
Investing Summary
The most important piece of investing advice I can give to new graduates is to start right away. The Internet has made enormous amounts of information available about the principles of investing and the different opportunities available. Take advantage of it and learn how to evaluate and choose where to invest your money.
Today’s investing technology allows almost anyone to start investing with minimal amounts of cash. You can open an IRA for as little as $250 if you setup up regular deposits with multiple mutual fund companies. You can even invest as little as $4 at a time in stocks through programs like ShareBuilder.
Take a piece of advice from thousands of people in older generations who wish they could turn back the clock and start saving and investing earlier in their life. Of course, hindsight is 20/20, but wishing something won’t make them any money. The good news is you don’t have to wish for the opportunity, it’s sitting right in front of you. Take advantage of it!
All posts by Ben Edwards
Well when your young and even as a college graduate the world can be very confusing. Sometimes you don’t even know where your going next, not to mention thinking about retiring.
When your young you tend not to think of those things as it seems an eternity before they will come to be.
Fathersez, isn’t it too bad we have to learn the hard way? If only we’d listen to wise advice our lives would be so much simpler.
I loved the 1st line of your second paragraph.
It is the primary reason that I set up my blog, so that my children at least will not make the mistake I did not wasting away the precious, cannot be recovered time.
Regards