When most of us were under 18, we couldn’t wait to be all grown up. Being an adult means you can do what you want when you want with whom you want, right? Well, kinda. Adulthood usually involves bills, like rent and utilities and Internet, and buying groceries and all kinds of new expenses associated with that freedom.
So, with all of these prioritized expenses, the thought of putting some of our income aside in a savings account and an investment portfolio might be the furthest thing from our minds. Who can afford to save anything in this economy? We get it. In fact, we’ve been there too. Feather Magazine spoke with twenty-something Melissa Hrusovsky, a senior associate for Foresters Financial, to get the low-down on what it takes to become a savvy investor in your 20s.
Pay yourself first. Designate money into savings or put some into an investment fund (or both) before paying your bills. “It might sound counterintuitive when you have these mounting bills, but it’s really important to pay yourself first,” says Hrusovsky. “I’ve worked with clients who had paid off their debt by the time they reached their 50s, which is great, but they didn’t have anything saved for themselves. It’s always better to start as early as you can in saving for retirement or for other long-term goals.” A savings account can be liquidated quickly when you have an emergency, while a long-term investment continues to grow until it reaches the time you designated to withdraw it. Even if you’re on a budget, you can invest as little as $50/month and increase your contribution over time as your income grows.
Know your risk tolerance and time horizon. Some investments are “safe,” which means that they don’t swing in value very much, while others might go up and down over time in the market. Risk tolerance, according to Investopedia, is how well you can handle the variability of returns on your investments. “You can figure out your time horizon by asking yourself when do you expect to use the money that you’re putting away,” Hrusovsky explains. “For example, do you want to access the funds in five years? You should probably choose a more conservative portfolio. If you have a long-term investment, such as retirement, you can have a few riskier investments that might give you big returns over time.”
Ask your advisor plenty of questions. “You should have open communication with the advisor and get clarification on anything you don’t understand,” Hrusovsky says. She suggests asking the following questions when you first meet with an investment advisor: What are the annual expenses? What is their service policy? What are their surrender fees (for taking the money out of the account)? What are the sales charges, if any? What are the expectations for the investment?
“Make sure that there is a service policy because you don’t want to be paying for someone to help manage your portfolio who isn’t providing any service,” Hrusovsky explains. “You also need to know what to expect from your investments and what the investment expenses add up to be annually.” For more information on how expenses and fees affect your investment, the U.S. Securities and Exchange Commission (SEC) provides an investment guide. The SEC also provides a detailed explanation of the kinds of investments you can make, which can be handy for when you meet with the advisor to discuss your investment goals.
The key to getting started in investing is doing your research, asking questions and adjusting your strategy to your budget as well as to your goals. And beginning your investing while still in your 20s means that your investments could really grow by the time you retire.