How Early Should You Start Investing?

Posted in Investments on June 29, 2020

There’s no one-size-fits-all answer to how early you should begin investing your money instead of just placing it into a savings account. Ultimately, it depends on what’s going on in your life. If you have a bunch of debt to think about, or you’re barely making enough money to fill your emergency fund, then you’re probably not ready to invest.

However, if you’re in the right situation, then you can start investing at virtually any age and begin seeing returns. In fact, the sooner you can start putting money away into stocks, securities and bonds, the more of an impact you’re going to see on your finances, thanks to things like compounding interest.

How to Start Simple

The good news is that if you decide you’re ready to invest, then there are plenty of ways to get started. If you don’t have any other sources of debt, for instance, you might decide that you want to take a loan out so you can afford to put more into your long-term investments. This strategy can work out quite well if you make sure that you’re going to be earning more in returns than you pay in interest.

However, if you don’t want to do anything too complicated with your cash straight away, then you can start with the basics. For instance, when you’re in your twenties and thirties, most of the jobs that you get will come with some kind of retirement strategy. If yours includes an employer match service, then you should be taking full advantage of it.

Although different employers follow different guidelines on how the concept of an employer match should work, the bottom line is that you basically end up with free money in your retirement fund.

Knowing Where to Put Your Money

If you do take advantage of the employer match strategy, or even if you’re just putting money into your future on your own, the most important decision you’ll need to make is where you’re going to put it. Some employer match schemes have restrictions on what you can do with your cash – so it’s worth looking into this before you get started.

However, the most common options are:

  • Choose a simple strategy: Check out things like asset allocation funds, or target-date funds, which help you to build more money for the date that you expect to retire.
  • Think outside of the box: Consider looking into brokerages that can help you to explore individual stocks to add into your plan.
  • Keep it cheap: Choose funds that come with the lowest expense ratios. This will help you to avoid gradually dissolving your nest egg over time.

Remember, whatever option you choose, you can also build on top of your employer contributions with tax-advantaged solutions. After you’ve put everything you can into your company plan each month, another great avenue to explore is your traditional IRA or Roth IRA accounts.

Other Investment Options to Consider

If you’re planning on furthering your investments with IRAs, remember that you’ll need to figure out in advance how much you’re allowed to contribute into traditional and Roth IRAs. The amount you can save without paying any tax fees will change each year, and you can pay a little more towards your future if you’re over the age of 50 too. However, that’s a while off yet.

On the other hand, if you’re happy with the investments that you’re making into your company plan, and you’re not interested in using an IRA, or you’ve maxed it out already – you can look into investing into your kids futures too. After all, when you get into your thirties, that could be the time when you’re starting to think about building a family.

In the US, there are a handful of popular options available for parents who want to give their youngsters a better start in life. For instance, you can get involved with the 529 plan administered by your individual state, or you can look into Educational Savings Accounts. Basically, these allow you to put more money aside for your kid’s college funds.

It’s Never too Late, or Early to Start

Ultimately, you can benefit from investing regardless of when you choose to start. Although it’s always better to begin building a nest egg early if you can, there are plenty of opportunities to help your money grow at various stages throughout your life too. If you’re really not sure what you should be doing with your cash, speaking to a brokerage or advisor might be the best next step.