Congratulations, graduate! After years of hard work, it’s time to celebrate. And with celebration comes gifts. From family, friends and even yourself. So what’s one of the best graduation gifts you can give yourself? It’s getting on the path to Financial Freedom.
Investing your money probably isn’t near the top of your to-do list. But it should be.
In fact, now is the perfect time to start investing. We’re talking today about why you should start right now and how you can get moving on investing today.
Why Now Is The Time To Invest
Setting up an investment portfolio is a savvy money move for recent grads in particular. Right out of school, you can enjoy three unique benefits:
1. Free Money
Some full-time jobs, and even some part-time gigs, offer you straight-up free money if you’re willing to do some investing. How? It comes in the form of a contribution match to your employer-sponsored retirement fund—usually a traditional or Roth 401(k), a 403(b) or similar investment plan.
Typically your employer will offer you $.50 up to $1 for every dollar you put into that retirement plan up to a certain amount. If you opt not to participate in the plan, well, you’re leaving 100% free money on the table.
So how can you maximize your haul of free cash? If possible, choose to contribute up to the maximum amount your employer matches. With your employer’s contribution, you may be able to double your investment before it even hits the market.
2. The Power Of Compounding
In the world of investing, time is one of the best advantages you can have. So if you’re just starting your Freedom journey—or if you’re investing in accounts you can’t touch until retirement age—you may have decades of time for your money to grow.
And that’s where the power of compounding comes in. With years to go, you don’t have to fret over market fluctuations. They’ll work themselves out long before you need to touch your cash. Instead, focus on contributing now.
In fact, the earlier you start, the less you’ll have to save . . . or the sooner you’ll reach Financial Freedom! Here’s an example:
At the age of 22, you make a one-time investment of $10,000 into a fund that produces a 5% annual return. By the time you’re 50, that amount grows to more than $39,000. But what if you wait until you’re 30 to make that same $10,000 investment? By the age of 50, you’ll have a little more than $26,000. In other words, waiting just five years to invest cost you nearly $13,000 in earnings.
The lesson? Investing now means having more in the future.
3. Invisible Funds
For some graduates, more education is looming around the corner. If you’re headed off to college, graduate classes, medical school or some other advanced education, you’re probably filling out financial aid forms. And the size of your current assets determines, in part, how much aid you’ll be offered.
But your new school has to turn a blind eye to some of your assets. Your bank account? Fair game. But your retirement accounts? They’re invisible.
So it pays to sock away cash employer-sponsored retirement plans or your own retirement accounts like an IRA or Roth IRA. Move your hard-earned money to hands-off accounts, and you’ll be able to keep more rather than handing it over to hefty tuition payments.
How To Start Your Own Investment Portfolio
Are you convinced that now’s the time for recent grads to start investing? If so, getting started may seem intimidating. But here are some tips for starting on the right foot:
- Pay Yourself First. Get your priorities in order while you’re young, and you’ll save yourself the trouble and financial cleanup down the road. Make the following commitment: Before you spend money on wants and lifestyle enhancements, you’ll contribute to your current savings and your future Freedom.
- Choose your investment vehicles wisely. Traditional or Roth IRA? Managed funds, index funds or ETFs? Your goals and financial situation may make some options better than others. If you need help choosing, enlist the aid of a respected financial advisor.
- Harness the power of technology. You’re busy… or forgetful. And you sometimes miss out on making investment contributions, reinvesting your dividends or rebalancing your portfolio. So use automation to set it, and forget it. You may even consider getting a little help from a friendly robot.
- Be picky about your investments. When investing for Freedom, you’re in it for the long haul. You want reliable growth to build your Freedom Generator. So avoid trendy, high-risk investments that promise to double your money overnight. Instead, opt for well-rated assets that have a history of success and that will produce Cash Flow for you.
So what’s holding you back from giving yourself one of the best graduation gifts you can?
image credit: Bigstock/Prasit Rodphan
Dr. Tony is the co-founder of MindShift.money and the best-selling author of three books on personal and business finances. Having achieved Financial Freedom at 27, Dr. Tony believes that through Financially Fit Bootcamp and Cash Flow Cure everyone can get there. He has made it his life’s mission to help others live a life where their money works for them—not the other way around.