Laura answers common investing questions from a young college student and a Baby Boomer. No matter if you're just starting out, getting close to retirement, or are somewhere in between, you'll get tips to make sure you have plenty of money for a comfortable retirement.
Investing for retirement should be a top priority in your financial life. However, the remaining time you have before you need to spend your nest egg must be a major factor in your investing strategy.
I'm going to answer common investing questions from a young college student and a Baby Boomer. I’ll cover eight investing tips to help you get on the right track (no matter your age) so you have plenty of money for a comfortable retirement.
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Investing Tips for College Students
Adam M. says, “I’m an 18-year-old college student who also works up to 60 hours a week on the night shift at a shipping company. I would love to retire early and not have to work until I’m 70, like my parents. But I have little knowledge about setting up a retirement account, where should I start?”
I can tell that Adam is going to have a successful financial life because he’s disciplined, getting great work experience, and thinking about the future at such a young age. He has an extremely long time horizon, even if he decides to retire in his 50s or 60s.
Here are four investing tips for college students:
Tip #1: Read Investing Books
Most students graduate from high school or college without ever taking a personal finance class. Take your investing education into your own hands by reading good books. They’re inexpensive, or even free at the library, and can provide information that’s priceless!
My book, Money Girl’s Smart Moves to Grow Rich, tells you everything you need to know about the basics of investing, retirement accounts, and much more. Here are a few more great books that I recommend:
- The Truth About Retirement Plans and IRAs by Ric Edelman
- The New Savage Number by Terry Savage
- Making the Most of Your Money Now by Jane Bryant Quinn
Tip #2: Don’t Waste Time
Typical college students are thinking about joining a sorority and the next keg party, not about retirement, like Adam is. Here’s the upside to investing as soon as possible:
Let’s say you invest $5,000 a year, or about $100 a week, starting in college and continue for 40 years with an average 8% annual return. You’d accumulate about $1.5 million—not too shabby.
Having time allows you to harness the amazing power of compounding interest. Compounding means that the interest you earn gets added back to your principal. So you earn interest on your interest and the balance grows at an increasing rate.
But if you procrastinate and let time slip away, you lose it’s earning potential. Waiting until age 45 to get started means that you’d need to save more than $31,000 a year for 20 years to end up with that same $1.5 million.
You’d pay a total of $620,000 ($31,000 x 20 years) out of your pocket over 20 years compared to paying a total of just $200,000 ($5,000 x 40 years) when you start early and invest over 40 years.
Remember that investing early is like getting a healthy retirement nest egg on sale! It’s one of the best financial habits you can develop. Even putting aside small amounts on a regular basis can go a long way toward reaching goals like retirement, saving for a house, or paying for college.
Remember that investing early is like getting a healthy retirement nest egg on sale!