Sunday, March 16, 2014

Investment plan for 20 year olds

What a delight to discuss investment goals with a young, destined to be successful, 20 year old woman.

Here is my side of the discussion.

TheMoneyMadam to the 20 year old.

Some investors know how to use collectables to fund their retirement.  Some investors have success owning, maintaining and flipping income real estate.   Most of us need to invest our earned income in stocks and bonds to create wealth, fund our lifestyles and eventually replace our salary with retirement income.  But before we can invest, we have to earn and save.  

Making the most of your earnings and savings will make the difference between financial struggle and financial happiness.

I will write a post that lists in basically chronologic order key steps we ordinary investors can take to attain financial happiness.

Begin with three months emergency funds.

Fund retirement accounts starting with a Roth IRA & HSA.

Save enough money for a down payment on a house.

Base mortgage on a 15 year payoff that you can afford but buy the longest maturity, lowest interest rate mortgage that does not have a pre-payment penalty.

Pay cash for everything else.

Budget well enough to begin saving for children’s education.

Invest retirement savings in low cost ETF’s including SDY and VIG; reinvest dividends.

Pay off principal residence.

Create enough investment income to replace salary(s.)

As you add to your responsibilities with home ownership, business ownership, and children, you may need to increase your emergency fund.

As you approach retirement, learn how to invest for yourself as SDY and VIG may not pay enough in income to replace your salary when you retire.  They are, however, the best investment for young people who do not have time to invest for themselves...yet!

Transition investment portfolio to income stocks and bonds with the goal of replacing your salary with investment income so you can retire.

Upon retirement with your home paid off and fewer responsibilities, you can reduce your emergency fund.

The chronology of this list may be altered by life’s events such as when children arrive or when you decide to retire.  However, those who invest with these objectives in mind, have a really good chance of attaining financial comfort and happiness.

The 20 year old to TheMoneyMadam; thank you
My pleasure!