It’s unusual for me to write an article for young investors, but over the past couple of weeks, I’ve had the pleasure of speaking with a few young folks. As such, I wanted to share what I think the single best piece of advice for young investors is as they get started in their careers. What is the one thing that is entirely in their control that can most positively impact every other future financial outcome?
I landed on the idea of investing 50% of every raise for your future self. We often underestimate the value of small decisions made over a long period of time. Even for the investor who isn’t currently investing anything and the prospect of investing seems daunting, this simple strategy can overcome a lot of obstacles.
For example, as the image shows, from a starting point of $0 investing, if the investor receives a 3% raise each year and invests 50% of that raise for their future self, in 30 years, they are investing 45% of their salary. If they’re already investing 10% and they start this strategy, they’ll be investing 55% in 30 years.
And they can do that without ever taking a pay cut. It’s almost too simple. And this speaks nothing of additional pay raises, promotions, or any job changes that come about. Regardless of how the pay increase originates, for each and every pay increase, take half and invest it.
The value of this approach is that it can help overcome a lot of potential mistakes along the way. Part of the reason for this is that it can keep your lifestyle from getting out of control which makes your actual retirement goals much more reasonable and easier to achieve.
But the long and the short of it is that – almost regardless of how somebody chooses to invest – if they put away 50% of all raises, the likelihood of achieving their financial goals are drastically increased.
Hence why I believe it’s so important to start the habit early. What I told the young folks I spoke with, and this is the genesis of this article, is that if they don’t remember anything else I have to say, invest 50% of every raise. If they do that, just about everything else is a minor detail.
If you’re a parent or grandparent, I hope you’ll share this one with your children/grandchildren.
Stay the course,
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This post is not advice. Please see additional disclaimers.