Young Investors

In a recent survey by PNC Financial Services Group, only one fourth of the young adults surveyed consider themselves financially independent and fewer than 2 in 10 expect they’ll have enough money for a comfortable retirement. These shocking statistics are probably skewed by the current negative feelings toward the economy, but they also represent a serious problem facing our country. Given the uncertain future of our social security system, young people need to start worrying about their retirement sooner rather than later. They need to be prepared to take care of themselves in retirement and here are some ways to get started:

Start Early - The power of compounding is incredible. The greatest mistake young people make is to not start saving for retirement as soon as they get their first job. The more time your returns can compound, the better off you will be.
Contribute to your company’s retirement plan - Most employers offer some sort of 401(k) or similar retirement plan. This is the easiest way for young people to begin saving and if your company provides any type of match on your savings, you are leaving behind free money if you don’t contribute!
Monitor your expenses – Learning to manage expenses can be the toughest part of growing up and having to finally pay your own bills. Luckily we live in a technologically advanced world where sites like Mint.com can help. Use them and keep track of your expenses so you don’t spend more than you earn.
Don’t just save for retirement – also save for an emergency fund - You should always keep a cash reserve for any emergencies that might come up. Having at least 6 months of living expenses in cash savings is a good goal.
Use credit cards, but pay the entire balance each month - It’s helpful for young people to have and use credit cards to build up your credit score. However you should never spend more than you are able to pay off at the end of the month.
Diversify - Despite what you might have heard in the media since the 2008 collapse, diversification still works. Make sure you have exposure to international stocks and U.S. stocks, large companies and small companies, bonds and real estate. Index funds provide a simple, low cost way to build a well diversified portfolio for young investors.
Contribute to a Roth IRA - A Roth IRA allows you to put after-tax savings away for retirement so when you take the money out in retirement you won’t be taxed on the distributions. This means that all the investment returns will grow tax-free for many years!
Don’t chase hot stock tips - Your best bet isn’t to try to beat Wall Street, but rather to keep up with it. If you buy and sell regularly you will waste away much of your returns on transaction fees. Instead set a plan to invest regularly in a well diversified portfolio of mutual funds.
Don’t monitor your portfolio on a daily basis - You won’t need your retirement savings for many years so there is no reason to watch the portfolio go up or down every day. Just keep diligently saving and over the long run your portfolio will continue to grow.
Don’t try to time the markets – The markets move up and down from day to day but you can’t predict the future. Come up with a steady investing plan and stick with it through the good times and bad and you’ll come out on top in the end.
Give your portfolio an annual checkup. Set asset allocation goals for your portfolio and rebalance if you stray too far from the targets. Review your individual funds’ performance compared to their benchmark indices to see if it might be time to sell any holdings. Morningstar.com is a great tool for this.

Whether you are a member of the younger generation attempting to get started with investing or you are a parent trying to provide guidance for your children, these simple rules should provide the groundwork for a lifetime of successful investing. If you have any questions or would like to speak to us about getting started with an investment plan, feel free to contact us.