Don’t Wait Until Retirement: Start Building Wealth in Your Early Career

When you land your first full-time job, investing may be the farthest thing from your mind. Between paying off any debt from your college years, finally being able to afford splurges like exciting vacations or new cars, or just keeping up with your rent or mortgage payments, investing can seem like a problem for later…or much later…down the line.

But here’s the reality: starting young is the single most impactful thing you can do to build wealth.

Whether your career is just beginning or you already have a start on your savings account, you should take investing seriously, avoid common pitfalls, and work with a professional.

Why bother investing at all? You’ve probably seen the videos all over TikTok and other social media platforms that advise you to keep your money in the bank. While keeping a solid, easily accessible emergency fund is often a good idea, keeping the majority of your savings in a standard bank account is actually losing you money.

Without investing, your wealth won’t keep pace with inflation; instead, it will lose value over time.

Take Advantage of Compound Interest

Compound interest makes the investing world go round, and the earlier you can take advantage of it, the better.

If you invest just $200/month, starting at age 25, with an average annual return of 8%, you will have approximately $500,000 by 65. Waiting to invest that same amount until you’re 35, though, cuts your savings in half. Those ten years of delay come with a cost of $250,000.

Whatever your financial goals are, investing is the way to help yourself achieve them. Use compound interest to your advantage and start investing now.

Create Your Investment Plan

When you do begin investing, don’t jump in blind. Create a financial plan—outline how much you want to invest each year, what your end financial goals are, and when you want to retire.

Use the rule of 4% for a general retirement plan. Most financial planners advise that an average person can expect to conservatively live off of 4% of their invested assets without depreciating the value of their investment. So, for example, if you want to live off of $60,000 in retirement, you would need to have $1.5 million invested in your retirement account.

Armed with your end goal, you have the information you need to create your investment plan. How much do you need to save each month to reach that goal?

Having specific goals allows your plan to become actionable. Creating a clear vision for your future gives you the information you need to take steps toward your goals.

For example, once you’ve identified your monthly contribution, you can have that automatically deposited into your investment account. You can even set up automatic investments!

Getting Started

With your plan in place, it’s time to begin. Don’t try to time the market. Waiting for the so-called “perfect” opportunity to buy in is a fool’s game. Predicting short-term market moves is an almost impossible task, so focus instead on consistently investing over time. Building your financial portfolio is a marathon, not a sprint. Achieving success comes—for most people—with consistency rather than hasty moves or impulse buys.

Once you are invested, don’t overreact to market swings. Just as death and taxes are inevitable, so are market fluctuations. At multiple points during your investing career, the market will experience a downturn. Don’t panic and sell at a low point—this will only lock in your losses. While there are certainly no absolute guarantees in investing, if you pick funds or indices with strong historical performances, like the S&P 500, you can look to past downturns and see that the market has, historically, always rebounded.

Diversification is key

While some investors choose stocks within specific industries that are personally meaningful to them—clean energy, for example—there is a higher risk of volatility with investments in individual stocks. Think of the adage of putting all your eggs in one basket.

Diversifying your portfolio is the best way you can help protect yourself against dramatic dips in the market. Spread your investments across different assets to reduce your risk and improve your long-term stability. If you are not yet comfortable selecting diversified individual stocks on your own, indices are a possible compromise. The S&P 500, Dow Jones, NASDAQ, Russell 2000, and NYSE are all examples of major market indices. These have already done the work of diversifying for you, so you only have to make one investment: an index fund itself. Past performance does not guarantee future results, but it can help us make informed predictions. Historically, these major indices have done very well, thanks largely to their diversification strategies.

Talk to a professional

Investing does not have to be a scary or overwhelming topic! Professionals are available to help answer your questions and equip you with the knowledge you need.

Just like with investing itself, the sooner you talk to one the better. You don’t need to wait until you cross a threshold or hit a certain age.

Experienced wealth managers, like our team members here at GDS Wealth Management, have the expert guidance needed to help you understand what your plan, risk tolerance, and investment portfolio should look like.

If you have any questions about investing or creating a financial plan, reach out to our team. Call (469) 212-8072 or visit www.gdswealth.com to talk with one of our experts.