Investment Tips For Recent College Graduates

By Steve Shepherd
Wealth Advisor with Tompkins Financial Advisors, Hudson Valley

As many college graduates are getting ready to step into the real world, the future can seem looming and all too close for comfort. While the top focus post-graduation is finding a job, it’s also important to make sure investing is on the roster– sooner rather than later. Beginning the process earlier can mean the difference between a six-figure retirement fund and one cresting seven figures, or working into one’s golden years versus early retirement.

Why Invest Early?
When it comes to investment strategies, it isn’t just about the quantity of money a person is contributing; it’s also about how long they’ve had their money in the market. The longer these funds are in the system, the more they gather interest and grow, making for a larger sum for retirement. Those that begin investing around the age of 22 won’t have to contribute as much of their paycheck per month to hit this high goal as someone who began investing just a few years later.

Options for Investing
In today’s world, there are a million and one ways presented to investors as the best way to prepare for the future. From different account types to apps versus working with a financial advisor, it can be overwhelming to someone just beginning to “adult”.

Let’s start with the three most common account types a new investor can open: the 401K, Roth IRA and Traditional IRA.

• 401K: These are often offered by the companya person works for and will allow the employee to contribute a specific percentage amount out of their paycheck per month that the company will then match.

• Roth IRA: This is considered an individual retirement account, as it isn’t traditionally sponsored by an employer, and contributions to this account are made after taxes, meaning that when they are taken out for retirement, the contributor will not pay any taxes on the funds.

• Traditional IRA: Similar to the Roth, this is an individual retirement account however, unlike the Roth that has an income restriction (Modified Adjusted Gross Income must be below $144,000), the Traditional does not have such restrictions. It also follows the format of a 401K, meaning that there is a deduction on your taxes now, but when you take out the money later the contributor is responsible for taxes on the funds.

When it comes down to how to invest, there are two options – going it solo or partnering with a financial advisor. With a professional advisor, they’ll be able to walk you through all of your options as well as help create an ideal savings plan, for both retirement and daily life. For solo investing, it’s never been easier – there truly is an app for everything. That being said, there are a few key details you should look out for when it comes to choosing an online investment platform.

• Costs: What are the account activation fees and are there any commission fees the platform charges for trades?

• Investment Types: What types of investment opportunities are offered and are any commission fees?

• Ease of Use: Is the company’s website and app easy to operate and intuitive?

• Customer Service: Does this company have any brick-and-mortar offices where an investor can go in and speak to someone or do they have a reliable online chat feature and/or 1-800 number?

• Technology: Are they staying at the forefront of modern investment technology?
While there are other options to round out a portfolio – savings accounts, CDs, I-Bonds, index funds, exchange-traded (EFT) funds, dividend stocks and even the increasingly popular cryptocurrencies – most early investors begin by having a strategy that falls into a specific bucket of risk level that they’re most comfortable with.

Breaking Down Allocations
When it comes to choosing the allocations of investment, this can seem stressful from the surface as no one wants to mess up something as important as saving for the future. That being said, there are three traditional types of investors that can help a new investor determine an ideal set of allocations for their portfolio.

• Conservative Long Term: This is ideal for the investor that doesn’t want to be super involved in their investment life. Typical allocations for this game plan are 40% in bonds and 60% in stocks with no variation into ETFs, index funds, etc.

• Moderate Long Term: If an investor is okay with fluctuations that have the potential for more growth, this type of investment plan incorporates slightly more risk through the addition of other investment types like real estate.

• Aggressive Long Term: For the investor that is less concerned with the overall risk and has longer time horizons, this portfolio will allow them time to recover from any potential fluctuations while also maintaining higher returns in the long run.

Whichever strategy an investor chooses to go with, the most important aspect is to make sure they’re keeping a close eye on all investments and rebalancing them at least once a year.

No matter how a person chooses to invest straight out of college, the important thing is that they’re choosing to. In an ever-changing financial climate where inflation is at an all-time high and the average American holds over $90,000 in debt, taking the time to plot out goals for the future and the ways to achieve them will only ever benefit the investor.

Whether it’s putting a small portion of a paycheck into a high-yield savings account or meeting a company’s 401K match, every little bit helps a person secure a stronger financial future.