When you’re in your 20s to 30s

By Arielle O’Shea via marketwatch.com   Article

Make these 5 essential investing moves when you’re in your 20s to 30s

“Research from the Transamerica Center for Retirement Studies indicates that nearly three-quarters of millennials are saving for retirement and that we started doing so at an earlier age than previous generations. Wells Fargo data show that of those who are saving, half are putting away 6% of their income or more. What we’re not so hot at, according to many of these same surveys, is investing. … Here are five crucial moves millennials can make to overcome their investing anxieties.

1. Get an education

… Khan Academy is a good place to start, as is NerdWallet’s guide on how to invest in stocks. …

2. Say hello to risk

… Investments that require you to take on risk, like stocks, have to offer you a premium for doing so. Could you lose money and never collect that premium? Sure, but that’s unlikely when you’re in it for the long-term. History illustrates this: A portfolio of 100% stocks had an average annual return of 10.1% between 1926 and 2015, according to a study by Vanguard. A portfolio of 100% bonds returned roughly half that, averaging 5.4%. To put that into real-money terms, if you invested $5,000 for 50 years at a 10.1% return, you’d have $614,000. At a 5.4% return, you’d have just $69,000. …

3. Take that risk through index funds

That 70% would be a reasonable stock allocation for your retirement portfolio — and even that might be on the low side. At this age, you should have most of your long-term savings invested in stocks. The best way to do that is not by dumping your money into Apple stock, but with low-cost index and exchange-traded funds. … You can buy a couple of funds that hold the stock of U.S. companies, one that holds international companies and one that holds emerging-markets companies and you’ll be reasonably diversified. …

4. Put a lid on fees

You can’t control the ups and downs of the stock market. What you can mostly control are investing costs — fees charged by your index funds (called expense ratios), administrative fees in your 401(k) and transaction fees incurred when you buy and sell investments. … If an index fund’s expense ratio is more than 0.25%, you can likely do better with another.

5. Use a Roth IRA or a Roth 401(k)

… Why choose a Roth? If your income is lower now than it will be later — a likely scenario for many young professionals — you’re locking in at lower tax rate. And because you’re not getting a tax benefit now, you get to pull out the money — both your contributions and investment growth — tax-free in retirement. To see how valuable that is, use a Roth IRA calculator.”

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