We all understand that it is smart to save our money for the future. After all, even if social security payments are still around once we hit retirement age, it’s certainly not going to provide sufficient income to keep us comfortable. Planning your financial future is a must, but it can be difficult, especially if you are young and have no experience with any type of investing. Consider the following tips to get you started.
There are quite a few different options for investing, and one that is both easy and relatively low-risk and affordable is investing in a 401 (k) plan. These plans are typically offered through your work, and the great thing about a 401 (k) is that most companies will match some of the funds that you place into the account. Your company might match up to any amount from $1,000 to $50,000, depending on the size of the company and your particular level of income. At any rate, it just means that if you save $200 out of a paycheck for your 401 (k), your boss kicks in an additional $200 into the account as well, which is basically just free money.
When it comes to 401 (k) plans, it is wise to consider putting in as much money as your company will match. So if your company matches up to $5,000 per year, put in $5,000 of your own money, too. If you put in less, you will miss out on some easy money. While $5,000 might seem like a lot, it’s about $415 per month, and if you started saving this amount each year at age 25, you will have well over $1 million in your 401 (k) by age 65.
If your company doesn’t have a 401 (k) plan or you just want to save a little more, an individual retirement account is a safe way to invest. Most banks offer these accounts, which are commonly known as IRAs. There are several different kinds, and some you get directly from a bank or financial service and others you can get through your employer. Talk to the financial advisor at your bank or someone in the HR department of your company and ask about different types of IRAs.
Certainly the stock market is still a place where money can be made and often at a much faster pace than any type of savings account. Of course, the risk is much higher, especially if you simply purchase stock in a single company. After all, if the company isn’t doing well, neither is their stock. One way to minimize the risk of the stock market, but still take advantage of potential earnings, is to buy shares of a mutual fund. This is a diversified type of investment where your money is spread among many different holdings or companies in order to keep the risk as low as possible. With diversity, your risk is lower simply because you aren’t betting on one single company. Most mutual funds are considered to be long-term investment strategies and a good way to build a future retirement portfolio.
Just as there are many industries and many companies out there in the market, there are thousands of mutual funds. Talking to a trusted finance advisor is always a smart idea before you invest. There are many mutual funds, and each focuses on something specific. For instance, a green energy fund will focus on alternative sources of energy such as companies who work with solar power or wind power. A China fund will focus on holdings or companies that are based only in China and Hong Kong, and these companies will be from a variety of industries, from technology to banking. There are mutual funds for just about every country, region or industry imaginable, so there are plenty of interesting investment choices to consider.
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