The Best Investment: Invest Early

make money investing

Gotta get that paper!

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You have a lot on your plate when you get out of school and start your career.  Not only do you have the stress of starting your first real job in the workforce but you have all kinds of bills to consider. Most of them were not that big of a deal in college.

Now you are paying for your own living arrangements.  You probably have student loans (the average debt is now over $27,000).  There are transportation costs along with your everyday living expenses.  Plus if you are just getting out of college where you probably had the time of your life you will most likely still have the itch to go out and have some fun on the weekends.

Add this all up and saving for the future comes in almost dead last on your list of priorities, right below going to the dentist and getting your teeth cleaned.  No one cares about planning for the future and saving for retirement when they get out of college.  That forces you to think about getting older and when you are young and carefree that can be kind of depressing.

Most of us just put it off for another day and decide that it will be much easier to start saving once we are older and make more money.  The usual line of thinking is that you can wait until you are actually ready to start saving and actually know what you are doing.  Unfortunately, this is the exact opposite of what you should be thinking.

Don’t Wait to Start Investing

In fact, when you get out of college and enter the working world it will be the best time to start saving for retirement.  Even though you have all of these new costs and worries you actually have some advantages at this stage of your life.

First of all, if you are just starting out you have no frame of reference to make comparisons with your starting salary.  Unless you had an investment banking or computer science internship that paid really well, this will be the most money you have ever made.  By saving and investing right away you will never even notice that the money is gone because you have no previous experience making a salary. Keep in mind that money management isn’t a skill that people are born with. You have to learn about it and master it. A great way to educate yourself in these matters is to pursue a degree in Security Analysis and Portfolio Management. Even if you’ve recently graduated, you can still obtain a degree in this field online. If you’ve recently finished college, you’re self-motivated, or full of entrepreneurial aspirations, a degree in portfolio management will only assist you with managing your money from the start, which is really what you should be doing.

By starting right away you are developing the correct saving habits that you will need to build wealth over your career.  It would be nice to get a couple of huge payouts instead of saving money periodically over time, but if you look at the actual success stories of average millionaires they have taken the slow and steady approach of investing with a long-term mindset.

Taking the “wait until I’m ready” approach doesn’t work.  Here’s why.  Once you progress in your professional and personal life you will want to increase your standard of living.  That means spending more money on material possessions.  Once you get married and decide to settle down and have a family you will have to buy a house and all of the related costs that come with home ownership.  And we have all seen similar stats that show a middle-income family will pay about $235,000 to raise a child.

The moral of the story is that you will never be ready to start saving if you continue to wait until you are “ready.”  Start when you are young and have the ability to adapt and create the right behavior to make a lasting impression on your future decisions.

Compound Interest

Another reason to start investing when you are young is because you will have the wind at your back through the power of compound interest.  This simply means that the longer your investment time horizon the better chance you have of increasing your portfolio value by earning interest on interest and building wealth.

Let’s look at an example to see compound interest in practice.  Assume that Chet starts saving $500 a month at age 25 and does so throughout his career until he retires at 65.  Assuming a 7% annual return on his investments he would end up with a nest egg of almost $1.3 million.  Not bad considering he only contributed $240,000 to his investment accounts in those 40 years.

But what if Chet waits until he is 35 and “ready” to start saving.  If he still saves the same $500 a month and earns 7% a year he would end up with just over $600,000.  Not bad, but still less than half as much as if he would have started at 25.  Plus he put in $180,000 which is not that much less than if he had started in his younger days.

As you can see it pays to start investing early.

How Do I Get Started?

The number of choices that you have to make can be overwhelming, especially since you probably have very little knowledge of stocks, bonds and other investments.  Plus you have to open the correct accounts and decide how much to invest.  It can be challenging.

Keep it simple and don’t worry if you don’t have the financial knowledge yet.  You need to start saving on a periodic basis.  That will get you 80% of the way there and you can learn the rest as you go.

Sign up for your company’s 401(k) plan and make sure you invest enough to get at least the company match.  That works out to as an easy 100% return on your money.  You get the added bonus of having the funds automatically taken out of your account every time you get paid so you never actually get the chance to spend the money.  You can then increase the amount you save over time as your pay rises.

Most plans have a default option of a target date retirement fund which will be diversified by asset class and have a professional investment manager making the decisions for you.  While it’s not the perfect investment vehicle it will get the job done.  Don’t worry about making the perfect investment just the right decisions that minimize your mistakes.

If you would like to learn more about other investment choices you can study up and diversify from the target date fund it you like.  For most investors that don’t want to pay much attention to their portfolios a target date fund should do the trick.

The Takeaway

Don’t wait until you are ready to start saving because that day will probably never come.  Start right out of the gates and you will develop the correct saving habits to build wealth over the long haul.  It takes time and a little effort but it will be worth it when you are sitting on a nice pile of cash in retirement.

This was a guest post by Ben Carlson from A Wealth of Common Sense.  Ben writes about personal finance, investments, investor psychology and using common sense to get ahead financially. You can follow him on Twitter or send your questions by email.


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  1. It’s great to get the message about saving and investing early out there. Hopefully millennials have developed the habits of saving before they even reach college so after college they already do it automatically. For those without 401(k) options at work, or if companies don’t match, should really explore Roth IRAs. Great lesson on compound interest! Such a wonderful financial tool :)

    • You’re right, starting in college or before is a great way to get started. There is no minimum age to open a Roth IRA so parents should look at this for their kids when they start their first job in high school as a way to teach a disciplined savings process. Even a couple hundred dollars a year can help them develop the right skills to be successful in the future.

  2. I’ve never quite believed those stats about the cost of raising a child. Certainly my parents didn’t spend anywhere near that much on the three of us. The only way those numbers can be correct is if you assign each child a share of housing costs. Which seems like rather fuzzy accounting to me, since an additional person doesn’t necessarily mean a larger space.

    • That $235K number does sound high but it includes food, housing, transportation, education, healthcare, clothing, etc. And over 17 years it’s about $13.8k a year. Many people pay daycare costs of $1k a month these days. That’s $12k a year for 4-5 years without factoring in other expenses. You do have to assume you’re buying a larger house as well. And with healthcare inflation, sports, camps, vacations, tutors, private school (for some) that $235k number may be on the low end depending on where you live.

      • Edward AEdward AntrobusntrobEd says:

        No day care, public school, and I was the only one interested in camp. We did bowl, but that is a relatively cheap sport. My family was always of the camp that healthcare is for when you are sick. My lifetime medical spending is probably under $10k and that is with the $3k deductible for my surgery 2 years ago.
        My point with housing costs is that they don’t scale well with increase in family size. We had a three bedroom house when it was my parents, myself, and my sister. When by brother came along, we still had a three bedroom house. My sister moved out, then I moved out, and finally my brother moved out. And still my parents live in the same 3 bedroom house. On a per-capita basis, housing was actually cheapest with three kids and most expensive after we moved out.

        • I agree with you. There are obviously a ton of families that spend much less than that average on their kids. I’m sure there is a wide distribution around the average on the high and low and depending on cost of living and the area of the country that you live. But I can see how the costs could be that high for some. The parents that are able to keep the costs low will have more to save for retirement and college.

  3. It’s so true that saving for retirement, which is eons away, is the last thing most college graduates want to do. Yet, retirement comes faster than you imagine and the reward of saving early is significant. I’m glad there are so many people bringing this to the attention of millennials and recent college graduates since few probably realize this as no one has ever told them. It can make a huge difference in their life and give them far greater freedom than they ever imagined. I see so many people who want to “officially” retire far earlier than we traditionally do, so they can focus on doing what they want – including how and if they work.

    • Thank you for your input Shannon! I definitely think this is an issue that more people need to discuss. Young people need to be more aware of the effect early saving can have on their lives!

    • Great point about financial freedom. If more young people were able equate saving early on with financial freedom later, it would be easier to get them to save. There seems to be a disconnect in this line of thinking.

  4. Spot on! Even without knowledge on investing, there is a method that everyone knows and that is to ‘pay yourself first’. Save now and invest later after acquiring the knowledge in building your portfolio.

  5. Ah I can’t wait until I can stop paying tuition and start dumping my money into longer term investments. I have investments right now, but they aren’t for retirement but instead to pay for tuition within the next 4 to 8 months. These are great tips, I hope more young pro’s follow them.

    • Thanks for your comment Lauren. It is a great feeling to stop paying tuition. :) It sounds like you already have great habits, so switching to investments should be a piece of cake for you.

    • Lauren, you already have one of the biggest keys to investing figured out. Aligning your goals with your time horizon and risk profile is key. Your current goal and time horizon for tuition payments is much different that your long-term retirement investment goals once tuition is paid off. This will help you keep a long-term mindset once you do start saving for retirement. Nice job.

  6. the numbers are really impressive, starting early was the major help to get a good financial start for me. I compare now with friends who didn’t and am much ahead, unless they scored a high paying job and turned their finances around.