Financial Fitness

Why Young Savers Should Stick to Long-Term Savings and Investment Plans

Worth sharing: Four key considerations could help young adults create a mindset to succeed with saving and investing for the future.

by Sarah Tuff Dunn - February 24, 2020

Greg Teets, Wells Fargo Advisors Business Leader, has met many younger clients who have had reservations about investing.

“Young investors may find themselves delaying investing for retirement because it seems so far in the future,” he says. “They don’t realize how important it is to identify savings goals and to begin investing at a young age.  Time is a young saver’s greatest ally.”

One hypothetical example Teets uses to emphasize this point to younger clients is what would happen if they invested $5,000 per year from age 25 to 65. If they achieved, for example, an average annual return of 7% and reinvested those returns, those investors could potentially retire with more than $1 million in accumulated wealth.

Here, Teets shares four key considerations for young savers when it comes to prioritizing long-term savings and investment plans.

1. Adopt a planning mindset

Research from the 2019 Wells Fargo Annual Retirement Study points to a need for better preparation to help future retirees meet their goals on their terms. One of the key factors identified in the report is that of a planning mindset—a positive and proactive stance that could set savers on a path to positive financial outcomes. A planning mindset can provide a road map that can help strengthen a person’s financial future.

2. Start with small changes

Small changes in your financial behavior today could have a big impact on long-term success. Creating a budget, building healthy financial habits, and becoming more comfortable and familiar with investing could go a long way in contributing toward achieving long-term financial goals.

Some practices to consider:

  • Automatically transferring part of your income into a savings account or an investment account.
  • Paying down student loans to avoid late fees and damage to credit scores (Learn more about balancing investing with paying down student debt.)

3. Begin saving and investing now

Start saving for retirement as soon as you can. The sooner you start, the more time every dollar saved has the potential to grow. If dollars saved early in your working years generate investment gains year after year, they can have a much bigger impact on the size of your account balance at retirement than you might think. Thanks to the power of compounding, as the dollars invested potentially earn returns, those reinvested returns can start earning returns, and so on—year after year. (Learn more about the power of compounding.)

“Taking advantage of the potential of compounding returns can make a dramatic difference in helping investors reach their savings goals,” says Teets.

4. Take full advantage of retirement savings plans

If your employer offers a 401(k) plan, be sure to participate—and max out any kind of matching-contribution offers. They are the equivalent of free money.

Roth IRAs—to which you contribute after-tax dollars—are also worth a closer look because they offer tax-free growth potential. Investment earnings are also distributed tax-free in retirement if specific requirements are met (learn more about traditional IRAs versus Roth IRAs).

“Another savings vehicle to consider is a Health Savings Account, which offers tax benefits to qualified investors,” Teets says.

Talk to your financial advisor about your investment goals and strategies to help you achieve those goals.

Sarah Tuff Dunn is a freelance writer in Vermont and a frequent contributor to Lifescapes. Her work has also appeared in The New York Times.

Additional Resources

Even if retirement is decades away, the decisions you make now could have an impact on your ability to pursue the retirement lifestyle you want.

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