The Investment Landscape for the next generation may differ from years past, but as always, success starts with a solid foundation.
As we celebrate the achievements and outlooks of this issue’s young professionals, it’s easy to get excited about the future. There’s a tremendous amount of talent represented within these pages that gives credence to the phrase “the best is yet to come.”
As a young investor, you can take advantage of market turbulence and allow the compounding of returns over time to work to you advantage.
In many ways, the actions we take during our 20s set the pace for the rest of our lives. Taking these early actions can be compared to building the foundation of a house. For young investors, this is critical. Having a sound foundation—one that stands the test of time—is the first step to building a house. While each house may be different, the process of building a strong foundation can be broken down into some tangible actions. Here are a few things young investors can do to provide a solid foundation for the rest of their lives.
Set Goals. For younger investors, it’s often hard to define a long-term financial goal such as retirement. It may be easier to set short-term goals such as saving a specific salary percentage or setting a date to maximize the contributions to a workplace 401(k) plan. Other short-term goals include payments on lingering student loans or credit card debt or setting up a cash emergency reserve. Striving toward a goal increases the chances of success, even if the goal may change in the future.
Action to Take: Review your income and strive to save 10-15 percent. Contrib-
uting to your 401(k) is the easiest way to begin taking steps towards that target. Consider raising the savings target by 1 percent or more annually. If debt payoff is a goal, set a payoff date and calculate how much you need to pay to fully pay off the debt by the selected date.
Start Investing Today. The good news is studies show Millennials are saving at a higher rate than other generations. This large pool of savings presents a great opportunity for young investors—time. These savings allow for time to play its part. Time allows for compounding of returns, which helps to accrue wealth. Even if you aren’t saving much, it’s better to start with something today. Studies show it’s easier to increase savings in the future—what’s difficult is deciding to save in the first place.
Action to Take: Make sure that you have some money invested. Check your 401(k) investments options and make sure they are not in cash. When you get a pay raise, consider increasing contributions to your plan
by a similar amount so your saving goes up but your cash flow is consistent.
Take a Long-Term View. Because time is the biggest savings factor
for young investors, it helps to take a long-term view on investment suc-
cess. The market will fall and rise many times over the course of life. Being disciplined and remaining invested during market turbulence has traditionally been the best path forward. Market downturns for young investors should be seen as a necessary part of investing. Maintaining discipline during instability can result in attractive purchase prices and compounding of returns during the market recovery.
Action to Take: Get in the habit of reviewing your accounts periodically, but do not obsess over them daily. During your reviews, consider simply rebalancing rather than making drastic allocation changes. Online access can be an asset or your worst enemy depending on how disciplined you are.
As a young investor, there are many things to worry about for the future—but that’s nothing new. For generations, investors have expressed worry about geopolitical, economic and social issues. Young investors have the unique opportunity to build a solid foundation. But you also can take advantage of market turbulence and allow the compounding of returns over time to work to your advantage.
Congratulations to all of this year’s 20 in Their Twenties honorees! I look forward to seeing the great things you’ll accomplish.
About the Author: Jeffrey Lenhart is senior managing adviser with BKD Wealth Advisors in Kansas City.
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