The Wisdom of Investing Early

By Deborah O’Connor

 

I received a letter this week from a young man interested in learning how to invest when starting a new job. I think you will find it very interesting, especially with many graduates starting new jobs.

 

Dear Deborah:

I am 24 years old and recently got a job and am interested in starting an investment program for my retirement. Is this too soon? If not, where and how do I start?

Jason, Irmo, SC

 

Dear Jason:

I applaud you for thinking about an investment program because most younger employees think they are too young to start planning for retirement and actually put it off until it is too late. Let’s go over some terminology and start developing a plan. The first thing you need to find out is if your company has a 401K Plan and if they will match your investment up to a certain amount. A typical match is 6% and you should be sure to invest what your company is matching as we refer to that as “free money”. A recommended savings for retirement is in the 10% range.

There are two types of 501k programs. They are company-directed and self-directed.  Look at the options your company gives you and get some professional help in determining what works best for you. The younger you are, the more aggressive you can be because time is on your side. Over the long haul this is usually a better strategy than a conservative approach.

Another tip is not to put all your eggs in one basket. Do not just invest in the company you work for; make sure you diversify. Because if you do put everything in one company and it goes under, you lose everything. A good example was Enron’s collapse in 2001. The company grew too fast and furious and came tumbling down, ruining millions of investor’s hopes and dreams. Unfortunately, many people had invested everything they had in the ill-fated stock.

Since we are talking about retirement investment plans I would like to briefly discuss IRA’s. This stands for Individual Retirement Account. You can set up your own plan and take out a certain amount for your retirement. There are two types, an ordinary IRA and a Roth IRA. With an ordinary IRA you pay taxes on the earnings at retirement. With a Roth IRA you pay taxes upfront so that you will not have to do so at retirement. The usual recommendation is that if you are under 50 years old you should go with the Roth IRA.

One last tip that is vital is that you need to start investing early in your career. It is amazing the financial difference it makes in the amount of your future investments.

 

 

Please feel free to send questions to Deborah at: www.successfulimage.biz.

She will answer them in her weekly column.

 

 

Deborah O’Connor is a social strategist and founder and president of Successful Image LLC with offices in Columbia and Atlanta. She offers training and seminars on image management, workplace etiquette, and social skills necessary to succeed in life professionally and personally. Contact at:  [email protected]        www.successfulimage.biz