Ah, the two words that excite and energize those who are in their 20s, Retirement Investing. Now if you’re like me, you’d ask yourself why do I need to start investing for retirement now instead where do I even start.
The first step is to open a Roth IRA, I personally use Vanguard to manage the contents of my IRA.
American financial theorist and neurologist William J. Bernstein, has laid out a simple strategy for what assets to invest in his book “If You Can - How Millennials Can Get Rich Slowly” .
If You Can : save 15% of your paycheck into your IRA and distribute it evenly into three categories.
- Category 1 : U.S. Total Stock Market Index Fund.
- Category 2 : International Total Stock Market Index Fund.
- Category 3 : U.S. Total Bond Market Index Fund.
Once a year check the valuations of these 3 categories and adjust them to be at equal amounts. These will all grow at various rates so we must adjust the amount once a year.
You may ask me, “I’ve been told that Buying low and Selling high is how to make money while investing! Wont my asset value drop?”. Well that’s fine, we’re planning on investing for 40 years in the future. This strategy has worked for John Bogle, in fact this strategy is similar to his.
Now there are some hurdles you and I must face when planning for our retirement.
- Control your spending - It’s very easy to spend that 15% of your paycheck elsewhere if you do not have tight control over your budget and lets be honest, it’s hard to stick to your budget in your 20s. I suggest setting up a transfer through your payroll portal to automatically take out that 15% from each paycheck. If the money isn’t directly in your bank account you have less of an attachment to that money.
- Learn the basics of Finance - It’s good to know the basics of what you’re putting your money into and indicators of how the values of your assets can change. I personally like Investopedia, learning about Risk Analysis and Portfolio Management can also be helpful if you want to take on risker investments.
- Learn the basics of Financial and Market History - Mark Twain once said “History doesn’t repeat itself, but it does rhyme”. Humans are creatures of habit, meaning that while we most likely wont make the same mistake again, we will probably make a similar mistake as we learn.
- Learn to plan long term - It’s hard planning for the future, it’s just how our brains are wired! Planning for your retirement is as long term as it gets but don’t let that stop you. You might see your assets drop in value in the short term but since you’re reading this you’re on the right path.
- Beware of “Free Lunch” - On your journey through life, many people will approach you trying to get you to invest in this once in a life time opportunity. They will come to you promising an easy way to get rich, this opportunity will give you 10x returns! Even if these people are your friends and family, make sure you say no. There is no such thing as a secret unicorn investment. Just like a work out routine, you should follow a financial routine and ignore these shortcuts.
Overcoming these hurdles might seem daunting at first but I know you and I can both overcome them together.
Let’s go forth and retire comfortably!