An Investing Road Map for Early Career Accumulators
Article from Morningstar
Because they’re just starting out, early career accumulators—loosely defined as people in their 20s and 30s—don’t typically have much in the way of financial capital (unless they’re technology savants or supermodels, that is). Not only are their earnings often low relative to where they’ll be in the future, but new college grads may also be digesting college debt.
But early career accumulators have other assets that their older counterparts can look upon with envy. With a whole lifetime of earnings stretching before them, early career people are long on what investment researchers call human capital: Their ability to earn a living is their greatest asset by a mile. Investors in their 20s and 30s have a valuable asset when it comes to investing, too: With a very long time horizon until they’ll need to begin withdrawing their money (for retirement, at least), early career investors can better harness the power of compound interest. They can also tolerate higher-volatility investments that, over long periods of time, are apt to generate higher returns than safer investments.
If you’re just embarking on your investment journey, it’s hard to go too far wrong with the mantra of investing as much as you can on a regular basis and sticking with very basic, well-diversified investments. But it also pays to think of your “investments” in a broad sense, steering your hard-earned dollars to those opportunities that promise the highest return on your investment over your time horizon. For most people, that will require a bit of multitasking: Rather than wait until all of your student loans are paid off to begin investing in the market or saving for a down payment for a home, for example, you may want to earmark a portion of each paycheck for all three “investments.”
Here are eight tips for investing well and multitasking in your 20s and 30s.
- Put debt in its place.
- Make the investment in human capital.
- Build a safety net.
- Kick-start your retirement accounts.
- Focus on tax-sheltered vehicles.
- Choose Roth if your taxable income is low or you’re multitasking.
- Invest in line with your risk capacity.
- Employ simple, well-diversified building blocks.
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