Why Invest in Your Future: The Benefits of Starting Early
It’s always a good idea to invest in your future. There is no one else like you. That makes you an especially rare commodity worthy of the time, research, and resources that it takes to shore up a more stable and financially prosperous future.
But no one else can do it for you. You are the only person who can make decisions about your life and your future. So why not start making those plans today?
Compound interest is often called the eighth wonder of the world. ~Albert Einstein
The best time to plant a tree was 20 years ago. The second best time is now. ~Chinese Proverb
There are many benefits of starting early with when, how, and how much you invest in your future. In this article, we will discuss all of the ways you should do so at once. Let’s begin!
The importance of investing at an early age
When it comes to investing, the earlier you start, the better. That’s because compound interest has a way of compounding over time, and the earlier you start saving and investing, the more time your money has to grow.
In fact, if you start investing just $5 a week from the time you’re 20 years old until you retire at age 67, you could have nearly $1 million. If you wait until you’re 30 to start investing, you would need to invest almost $8 per week to end up with the same nest egg. So clearly, time is of the essence when it comes to Investing.
The best way for kids to start investing is through a 529 college savings plan. A 529 plan is a tax-advantaged savings plan designed to encourage saving for future education expenses.
Contributions made to a 529 plan are not subject to federal income tax, and in some cases, may also be eligible for state income tax deductions or credits as well. Earnings on investments grow tax-deferred, and withdrawals are tax-free as long as they are used for qualified education expenses such as tuition, books, and room and board.
Another option for kids who want to start investing is a custodial brokerage account. This type of account allows minors to own investments such as stocks, bonds, and mutual funds.
A custodian, typically a parent or guardian, manages the account on the child’s behalf until he or she reaches the age of majority, which is typically 18 or 21, depending on the state.
Custodial brokerage accounts have certain advantages and disadvantages compared with 529 plans. One advantage is that the account owner, not the beneficiary, controls the investments in a custodial brokerage account.
That means the account owner can change the investment mix as market conditions change and the child’s needs evolve. With a 529 plan, on the other hand, once you choose an investment option, you generally can’t change it without incurring taxes and penalties.
Another advantage of custodial brokerage accounts is that they offer more flexibility in how the money can be used. Withdrawals from a custodial brokerage account can be used for anything, not just qualified education expenses.
That means the money can be used to pay for private school tuition or even a first car. With a 529 plan, on the other hand, withdrawals are only tax-free if they’re used for qualified education expenses.
Why it’s important to start planning for your future today
It’s never too early to start planning for your future. By thinking about what you want to do with your life, you can make better choices about your education and career.
For example, if you know you want to be a doctor, you can take classes in high school and college that will help you get into medical school. If you’re not sure what you want to do, that’s OK too.
Similarly, investing now rather than later can help you to make the most of your future prospects. Learning fiscal responsibility and investing at an early age will put you into a position where you can think more about your career path and less about how you’re going to keep the lights on or your stomach filled.
The benefits of investing early
Investing at an early age has many benefits. One benefit is that you have more time to let your investment grow. Another benefit is that you can take more risks when you are young and have time to recover from any losses. More examples:
- Helps you diversify your portfolio and reduce your overall risk
- Takes advantage of compounding interest, or when earnings from your investment are reinvested and grow over time
- Gives you the opportunity to take advantage of tax-advantaged accounts, such as a 401(k) or an IRA that helps you save on taxes in the future
- Lessens the likelihood of relying on credit cards
All of these factors make investing at an early age a smart choice for your financial future.
How to get started on investing for your future
When it comes to investing, there are a lot of options and conflicting advice out there. It can be tough to know where to start, especially if you’re on your own for the first time.
If you’re 21 and looking to get started with investing, there are a few reputable places you can go for help. One option is an online broker like TD Ameritrade or E*TRADE.
These platforms offer a variety of resources and tools to help you research and make informed investment decisions. Another option is a robot advisor like Betterment or Wealthfront.
These companies use algorithms to automatically manage your portfolio based on your goals and risk tolerance. Finally, you could also consult with a financial advisor.
This person can help you create a tailored investment plan based on your unique circumstances. Whichever route you choose, the important thing is to do your homework and make sure you’re comfortable with the risks involved.
Summing up why you should invest in your future
When it comes to your future, the earlier you start investing, the better. Investing at an early age has many benefits, many of which we’ve covered above.
If you’re not sure where to start, there are many resources available to help you get started on investing for your future. Here are a few:
- Investing for Beginners | Investopedia
- How to Start Investing in Your 20s | The Motley Fool
- Start Early, Invest Often | Vanguard
No matter how young you are, it’s never too early to invest in your future. By getting started today, you can set yourself up for a bright future. With so many resources available, there is no good excuse to stay on the sidelines.
[Featured Image by Flickr Creative Commons License]