I’m in my mid-20s and just landed my first great job. I don’t have much to invest, just a sum my grandmother left me, but I want to build a solid portfolio for the future. How do I get started?
[elliot dole]
Asset Management Director, Buckingham
Your best investment is in your own education. Books like Larry Swedroe’s Think, Act and Invest Like Warren Buffet are a great primer. But, because not everyone’s goals or financial situations are the same, how to start building a portfolio depends on your unique circumstances. Before investing for retirement, you must take into consideration your amount of debt and your ability, willingness and need to take risk. It also may be prudent to pay down debt and set aside savings for an emergency or a major purchase.
Next, consult with an adviser who is legally obligated to provide a fiduciary standard of care—meaning, to do what’s in your best interest. There’s no reason to work with anyone who’s not willing or required to make that commitment. Focus on advice, not products: it’s more important to figure out your needs first, and then implement a plan using the optimal investment vehicles to meet those needs. The best investment plan is one that gives you the best chance of meeting your goals, that you’re able to stick to, and that allows you to enjoy life. But investing is only part of a solid financial strategy. A good plan should also take into account your insurance, tax and estate-planning needs.
As a young investor, time is on your side. There are tremendous benefits to getting an early start, including additional years of compounding interest, time to ride out market declines, and being positioned to buy low during down markets
[thomas schmidt]
Financial Adviser, Wells Fargo Advisors*
While the number of investment options can intimidate even a seasoned investor, youth can be a tremendous ally when building a portfolio. Start by focusing on a few basic steps. First, set your financial goals. Do you want to grow your assets and income? Save for a home or distant retirement? Identifying objectives can help guide your investment decisions. Next, evaluate your current financial picture. Add up all of your annual income and then budget for your regular, essential expenses. The difference is what’s left over to spend on discretionary purchases, including entertainment, gifts and contributions to your investment portfolio.
Consider your risk tolerance. Determine whether you’re comfortable accepting greater risk for potentially larger gains, or would prefer sticking with safer investments with typically lower returns. Then, research your potential investment. Do a little homework to understand how it works. Read the company’s annual reports or analysts’ reports. Ask a financial professional for a prospectus or other information and advice before you invest. Finally, start saving. Unfortunately, many investors fail to recognize the concept of the ‘time value of money.’ In your mid-20s, time is your friend. Use it! Saving early and staying committed to a regular savings strategy can reap many rewards in the years ahead.
*Investment in securities and insurance products are not FDIC-insured, not bank-guaranteed, and may lose value. Wells Fargo Advisors LLC, member SIPC, is a registered broker-dealer and a separate non-bank affiliate of Wells Fargo & Company.
