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- Hey guys, Robert here, from the College Investor
and I am excited to talk to you today
about a common question that I get asked
at least once a week, if not like five, six times a week,
and that is how to get started investing after college,
specifically if you're in your 20s,
but really like just basically how to get started investing.
So I wanna talk a little bit about some different things
that I think about when I give advice on this topic
and I wanna share some thoughts about why it's important
to start getting investing or get started
investing in your 20s.
So first off I wanna share with you a little data,
so according to a recent Gallup Poll
about 26% of people start investing before the age of 25
which I think is really awesome,
and another like about 20% or so start investing
between 25 and 30, so a good like third
to a little less than half of people get started investing
in their 20s, and that is awesome,
because the thing about investing is it's a game of time
and the one thing that you have going for you
when you're in your 20s is time, right?
As you get older you have less and less time to save
and allow that money to grow into the future.
So simply by starting earlier you automatically
set yourself up to have better investing
and wealth building over time.
So let me give you an example here,
if you start investing at age 22 with the goal of reaching
a million dollars at the age 62, that's 40 years,
and if you wanna achieve that goal at 8% annual return
it would take you about 3,600 dollars per year
to achieve that goal.
Now 3,600 dollars per year could sound like a lot
when you're 22, but honestly it's not that much money,
and that's awesome, if you keep doing 3,600 dollars
per year every year starting at age 22
you could have a million dollars by age 62.
Now what happens if you wait?
What if you waited just 10 years and you start age 32
instead of age 22?
Well if you were to start at age 32 the same thing
would take you 8,200 dollars per year
to reach that same goal.
I mean that is a lot more money, it's still not outrageous,
but it's a lot more than 3,600 dollars per year,
it's over double, and that's just because you waited
10 years and you have 30 years versus 40 years
to allow that money to grow.
So you basically probably already knew some of that,
but I just really love to share some numbers there behind it
because that is really startling to me,
the earlier you start the less money you have to invest
over time to achieve the same goals
as someone that's starting in their 30s
or even worse, in their 40s.
So start early, start right when you get that first job
after college and you will start seeing
real progress over time.
So when you get started investing do you need
a financial adviser?
And honestly I don't think that most 20 year olds
that are getting started investing need a financial adviser,
and I talk to a lot of experts including financial advisers
and wealth advisors and financial planners
and most of them agree that in your 20s
you don't need a financial adviser.
The reason is is 'cause you don't have
that many decisions to make, you have a little bit of money,
you don't really have a lot to pay a financial adviser,
and really the biggest thing is is in your 20s
the biggest thing that's gonna build you wealth over time
isn't your financial investments or what you invest in
and all that kind of stuff, it's actually your savings rates
that you put into your investments.
So what do I mean by savings rate?
It's basically how much you save every single month
and every single year, that's gonna be the biggest thing
that decides how wealthy you're gonna be in your 20s,
it's not about your investment allocation,
it's not about what you do with your money,
it's just simply the amount of money you save.
So honestly, I don't think people need to get hung up
on this need for professional financial advice in their 20s.
You know, I believe that people should go see
a financial adviser around life events,
and when I say financial adviser I really believe
that people should see a fee only financial planner,
and a fee only financial planner is the one that
where you will pay a flat fee to
and they will give you a financial plan.
And the reason I say you should only do this
a few times in your life is because typically
that financial plan will work for a long time to come.
So I think if you really want to after college
it could work, you can go see a financial planner
and they will give you a plan, and that plan
should carry you forward until your next life event,
and for a lot of people that next life event
is gonna be marriage.
So after you're combining finances that could be
a really great time to see a financial planner
because now you got two people, you got long term goals,
you got a family you're thinking about
and that could make sense.
And if you see 'em at your wedding after you're married
then the next time is maybe when you have kids,
and then the next time is maybe when you're thinking
about retirement, and then the next time
is when you're in retirement.
So you see, these life events, they are great times
to see a financial planner, but once you see
that financial planner, that same plan
should carry you forward until your next life event.
That's why I don't like people that manage fees
with assets under management, and this is where
they take a percent of your money every single year
to mange your money, and it can make sense for some people,
but you know, if they're not doing anything for you
every year, why should you be paying them every single year?
Because honestly, that same financial plan
you get right when you get married should last you
for five, seven years, and there's no reason
to be paying more and more fees every single year
just to get the same financial plan that you already set up.
So you know, that's why I think it's really, you know,
you don't necessarily need a financial planner
in your 20s to get started, you can really go
one of two routes, you can go the self-directed route
which is where you open your own accounts
and do everything yourself, and honestly
I think most 22 to 29 year olds should do this
because their number one account is gonna be
their 401(k) or 403(b) or whatever their employer
sponsored plan is gonna be.
That's gonna be the biggest way that most 22 to 29 year olds
start investing and that's self-directed.
The other route you can go is with a Robo-advisor,
these are things like Wealthfront or Betterment
where they do charge you a fee every single year,
but you know, they take care of a lot of the background
stuff for you and you basically just deposit money
in these accounts and these companies handle the rest
for you, that's why they're Robo, they're robotic advisors,
they take your information and they build a plan
for you automatically.
So as you get started just keep that in mind,
those are the two real ways that you should go
when you're in your 20s and yeah,
it's really about what kind of account you open.
So like I said, the number one way that people
in their 20s are gonna start investing
is through their employer plan, a 401(k) or a 403(b),
it could be a Thrift Savings Plan
if you work for the government as well,
but realize that this is essential,
as soon as you get your first job
and as soon as you qualify for your employer plan
you need to start investing in it at least
up to your employer's match, because most employers
typically match anywhere from three to five percent
of your pay up to a certain percentage,
maybe dollar for dollar, or 50 cents on every dollar
you contribute, whatever that match amount is
you need to take advantage of it
because that is free money that you are leaving on the table
if you do not start contributing.
So like literally they are like here, take some money,
take some money, and the sad part is
is most people aren't taking that free money.
So make sure when you get that offer
and you get that 401(k) you start
contributing to it immediately.
The second way that I think most people 22 to 29
should start investing is in their IRA.
So you could open a Roth or a Traditional IRA.
Remember, a Roth IRA is after tax money
and you get to take it out tax free in the future,
and a Traditional IRA is pretax money,
so you get a tax break today and then you pay taxes
on the money in the future.
You know, there's pros and cons to each,
and that could be a whole video in itself
so we're not gonna go into that too much right now,
but the biggest thing is if you're gonna open
an individual retirement account or an IRA
this is where you can go that self-directed route
or you can choose a Robo-advisor like Betterment
or Wealthfront and they could help you allocate
and choose what investments that you should be in
based on your risk tolerance and your goals
and the timeframe that you wanna invest in.
So really keep that in mind guys.
The next questions I get a lot is how much should you invest
because this is the key factor, is the amount you invest
will equal how much wealth you'll have in the future,
and the easy answer is simple, you need to save and invest
until it hurts you to save or invest any more,
because honestly if you're not saving until it hurts
you're probably not saving enough money.
So what does saving until it hurts means?
Well you should make saving and investing mandatory.
As you're looking at your budget this isn't
discretionary funds, this is money that you should be
putting into your savings and investments
before you start looking at your like living expenses
and how much you can spend going out to dinner,
like these are mandatory expenses,
you should treat your savings and investment
just like you treat your rent.
It's really important that you save automatically
into these accounts every single month.
So how much is enough?
So you should be taking, you should be taking advantage
of your employer's 401(k) up to the match.
I challenge you to take it up to max out
your IRA contribution every single year,
so for 2016 that's 5,500 dollars per year,
and then also you should be, I'm challenging you
to max out your 401(k) contribution,
now this one's a little tougher,
that's 18,000 dollars per year,
so that's about 1,200 dollars a month right there
and that's a lot of money, but I challenge you
to shoot for that because the more you save today
the better off you're gonna be in the future.
Now if you can't quite hit those goals yet
I understand that, and you know, that's why
it does have to hurt a little bit,
so if you're not quite there yet I challenge you
to give yourself 100 dollars more a month
beyond what you're currently doing.
So make it hurt a little bit, make it sting in your budget
and see what you could do to try to achieve those goals.
Now I don't want you to forget that, you know,
a budget has two sides to it, so you have the amount
that you earn and then you have your amount you spend,
but you could, so you know, when we're talking about
like making your investing and savings
as part of your mandatory spending well don't,
remember, you could boost your income too.
So you know, if you're trying to put an extra 100 dollars
into your 401(k) every month, you know,
maybe you consider side hustling,
driving for Uber a couple days a week
so you can get that extra 100 dollars
and you could put that into your savings
and investing accounts.
So those are my thoughts on how to get started investing
in your 20s, I also have some mock portfolios,
if you think that you wanna invest yourself
and you wanna do the self-directed route
on the blog today and this blog post that's linked
right here in the comments you can go and see
our asset allocations that we kind of,
we based on the Bogleheads and some really low cost
Index Funds, they're mock portfolios and they might work
for you, I think you should definitely check 'em out,
they're great ways to get started investing in your 20s.
Now if you don't wanna do it yourself
remember you always have the Robo-advisor route
and we like Wealthfront and Betterment as the Robo-advisors,
and you can both, you can find links to both of those
in the article that's linked in the comments here,
the Start Investing After College article.
So hopefully you found this valuable
and I hope that you see that, that it's really easy
to get started investing after college in your 20s,
and you know, it doesn't take as much work as you think,
but it really pays off in the long run,
the more you invest, the more you will have
wealth in the future.
So guys hopefully you liked this video,
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