Financial Friday: Investing Young for Retirement

Most companies these days offer 401k plans for their employees. Why is it important? Well, the younger you are when you invest, the more time you have for your money to mature so that you have it later for retirement. That means putting less money in and getting more money out. Sound good? I thought that would.

Right now, interest rates are historically low. That is good news for taking out loans but bad news when it comes to investing. Banks will pay you less interest for things like savings accounts and CDs. However, the stock market is on the rise. Especially if you consider the fact that your 401k money will be sitting for a while, you can get rates such as 7.5% which is 6.5% more than the highest interest savings account that I have been able to find.

The other thing is that most IRA programs and 401ks have different funds you can invest into. As a 25 year old, I have one with a target retirement date of 2050 for my 401k, but I have the option of splitting my money across different funds. The closer you get to retirement, the less risky you want your fund. However, a rule of investing is the higher calculated risk, the higher the reward.

If your company doesn’t offer a 401k program, seriously consider getting a private IRA. These IRAs can work in similar ways to 401ks but the contributions are not matched by your company. On a quick side note: for a 401k, consider putting in at least the amount that your company will match. Otherwise, you are essentially throwing away free money. Anyway, putting money into your IRA or 401k now could have big results in the future. Waiting will reduce those results.

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About Danielle Beranek

Life can get away from you when being young, married, and still fairly fresh out of college. Taking on a pet, student loans, going back to school, and soon a new house is enough to leave ones head spinning. For me, life is crazy, but only on the outside.
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