Investing Advice for Young Professionals
As you start to climb professionally, putting money into investments lets you start to climb financially, too. Investing wisely at the start of your working life is one way to help have the option to retire early—or to afford whatever adventures life might have in store for you.
There are a few critical pieces of wisdom that may help you think about your overall approach to investing when you’re just getting started in your 20s. The top investing advice for young professionals won’t apply to everyone equally, of course; there are exceptions to every rule, and what works for your peers won’t necessarily work for you. But as a general jumping-off point, here’s some of the advice I often share with young professionals about investing.
#1: Keep yourself open to risk.
Youth is a tremendous asset when you’re investing. The more working years you have ahead of you, the more time you have to recover from any failed investments. Young professionals may be able to afford to take some investing risks that we might not recommend for people who are getting close to retirement. If you want to invest in a startup you believe in, try trading stock options or put your money into some other high-risk investment. Your 20s are probably the best time to take the leap.
Of course, accepting a high level of risk shouldn’t be the philosophy behind your overall financial plan. (You don’t want to take big risks with your emergency savings, for example!) But at this stage of your life, some calculated chances may not derail your finances completely.
#2: Know exactly how compound interest works.
Avoiding spending temptation can be really tough when you have disposable income for the first time. If you can finally afford some of the things you used to daydream about as a cash-strapped teenager; it’s hard to resist making some spontaneous purchases. Putting that impulse-buy money in an investment account to start accumulating compound interest is often the better decision for your long-term financial future. The problem, of course, is that a new gaming system or a luxury trip is tangible, and the power of compound interest… really isn’t.
It sounds simple, but getting really familiar with how compound interest works is an important piece of investing advice for young professionals. Make sure you have a real-world understanding of how compound interest can earn you tens of thousands of dollars over the course of your career, if you prioritize investing over spending. Watch our video about what we call the 10 vs 30 rule for a two-minute crash course.
#3: Balance student loan repayment with investments.
Young professionals who enter the workforce with student loans have heard the horror stories from older generations who are still burdened by loans in their 30s, 40s and beyond. If you have significant student loan debt, eliminating that debt is probably one of your top financial priorities. The faster you can pay down student loans, the better… right?
Maybe, maybe not. Taking a really aggressive stance with student loan debt repayment isn’t always in your best interest if it means pulling too much money away from your savings and investment accounts.
Depending on how much they owe and at what interest rates, some young professionals might be better off allocating more of their money to investments than to student loan debt. Finding the right balance between paying off your loans and contributing to your investments is something to talk about with your financial advisor.
#4: Maximize employer offerings.
Sometimes young professionals miss out on lucrative investment opportunities offered by their employers, without even realizing they’re leaving money on the table. If you have access to employer-sponsored retirement accounts, setting up automatic contributions lets you steadily grow your safety net—especially if your employer offers any contribution matching, which is basically free money.
#5: Accept help with investing and money management.
Investing is for everyone, including young professionals with limited resources. But if you didn’t grow up hearing your parents talk about investing, or don’t have a strong finance background, you may be intimidated by the idea of making your first investments. You may even feel intimidated about the idea of speaking to a financial advisor about getting started with investing as a young professional.
Don’t be! We’re used to working with clients who are new to investing, and we want to help you understand all the possibilities that are open to you. Getting started with investing can actually be fun when you’re working with the right financial advisor—especially once you (hopefully) start to see your money grow.
Providing investing advice for young professionals is just one of the ways Sachetta Callahan helps clients at every stage of life. Whether you’re brand-new to investing or want to move your investing strategy to the next level, we’ll meet you where you are to help you get where you want to go. Contact me today!
Eric Sachetta, ChFC®, CFP® is a Certified Financial Planner™ practitioner and focuses on financial planning and client relationship management. Eric believes that estate planning provides an opportunity to “look at all things that you value, see how they fit together, and make choices to balance everything and to maximize the things you want to do.”