Youth may be wasted on the youth, but that doesn’t mean their money should be wasted, too.
According to Chris Hernandez, financial adviser with Edward Jones in Marion, there is no time like the present to begin saving for retirement.
“You need two things to invest, time and money,” Hernandez said. “When people are willing to put those things together, they’re usually successful.”
He emphasized the importance of thinking ahead and investing early.
“A lot of people start late,” Hernandez said, “At the end of the day, a 50-year-old who invests $5,500 a year until they’re 60 isn’t going to have as much as the 18-year-old who invests $10,000 once. The reason is the time equation.”
Early investment allows money more time to grow by compounding interest, he explained.
A person 49 or younger has a $5,500 limit to what he or she can invest for retirement tax-free per year, Hernandez said. When investors reach 50, he said, the IRS allows people another $1,000 as a “catch up” toward retirement because of the time equation that figures into saving.
“People who get into a pinch usually need either time or money,” he said. “I can’t produce time and I can’t print money.”
Hernandez also highlighted the importance of making “quality investments,” and part of making a smart investment is doing a risk assessment.
He said a risk assessment essentially helps investors understand and prepare for the volatility of certain investments and set up personalized long-term investment strategies.
“Once you know what you can live with as far as profit-to-loss risks are concerned that can allow you to invest freely without keeping yourself up at night,” he said. “There’s no question, everyone’s needs are different. Some have higher costs with health care. Others get lucky and end up selling their house for double what they bought it for.”
The investor who is prepared for a quality investment’s percentage to fluctuate on the market is typically more likely to make a long-term profit, he said.
“History has shown us that the investor who panics is the investor who loses money,” Hernandez said. “Failure happens because people panic when the market drops. We preach to clients, ‘be long, buy quality investments.”
Kim Vidricksen, investment representative for GP Financial Services, located at Great Plains Federal Credit Union in Hillsboro, also stressed the importance of diversification in investing.
She said it was a good practice to have a mixture of conservative, moderate, and aggressive investments in a portfolio.
“You want to make sure your adviser has your money diversified,” Vidricksen said. “You don’t want to have everything in aggressive growth because then you won’t have anything to fall back on if things go bad.”
Slow, steady growth is typically a good practice, she said.
“The closer you get to retirement you want to be more conservative than you do when you’re a young investor because you don’t have the years to regain any losses,” she said.
For a young investor who might not have as much money to put into an investment, Hernandez recommended they choose a percentage or what they make rather than a set figure.
“It’s easier, and it’s at least a number to start with,” he said. “Eventually, you’ll acquire a taste for it and you’ll be able to adjust the percentage to your taste.”
He also urged parents to talk with their teens about the importance of early investment.
“If people overlook saving for retirement they’re overlooking retirement,” Hernandez said. “You have to be an early starter and be committed to your investments.”