Dear New College Graduate,
I suggest you start investing as soon as possible; the earlier you start, the more money you can make. I would recommend you to stay away from actively managed funds because you you can end up losing money due to the high taxes, the high expense ratios, and 12B1fees. There also isn't a guarantee that they will beat the index. And if you do, for some reason, decide to invest in an actively managed mutual fund, don't make your decision based on the past performance of the fund. You should invest in index funds because they have small expense ratios and they include virtually every stock in the market. If you are lazy, there is an easy way to make money from your investments without doing much. Basically what you do for this couch potato investing approach is make sure the bond market percentage of your portfolio I equal to your age, and the stock market percentage of your portfolio makes up the rest. For the stock market section, you need to make sure you invest in both the US stock market (or the stock market of your home country) and the International stock market. Every year you rebalance your portfolio to make sure you increase the bond percentage to match your age and decrease the stock percentage accordingly. Some index funds, like the Vanguard Target Retirement Fund 2055, does this annual rebalancing for you every year.
One way us humans mess up our investments is to let our emotions dictate our behavior. When prices are high we tend to want to buy things, and when prices are low we tend to not want to buy things. This is a big mistake when investing. The stock market is always fluctuating and it is unpredictable. One thing we do know is that eventually, it always rises, and when it does, we have the chance to make money. When the stock market is low, you want to buy as many cheap stocks as you can so that later, when the stock market rises, you can sell them for more and make a profit. Also, it is best to invest the same amount every month instead of investing more when the stock market is doing well and less when the stock market is doing badly for the same reasons: because it is unpredictable and being consistent will make sure you don't do things you will later regret.
Whatever you do, make sure you start investing as soon as possible. When you invest, the money actually compounds so you're able to make quite a lot more money. Over the years, your money can end up going into the millions if you invest annually. If you invest just a little every month, and spend the rest on whatever you want, you could still end up making money and living comfortably. You are also prepared and financially secure for your retirement. If someone started investing later on, they would have to invest a lot more every year to match the person who started investing early. I will use the Money Chimp Compounding Calculator to prove this. Let's say that Tina started investing when she was 16 and she decided to invest $3,000 annually. In this calculator we would put $0 for the current principle because she's starting off with no money, $3,000 for the annual addition, 30 years in the years to grow category, and 9% as the interest rate. Our result would be $445,725.65 after 30 years of investing $3,000 a year. Of course it would probably be more because, as her salary would increase, the amount invested would probably increase too, but for the sake of this example we will assume that she didn't. After 30 years of investing at age 46, she befriends Beatrice who hasn't been saving or investing her money so she's scared of not having any retirement money. Beatrice earns more money than Tina, so she assumes that it won't be that hard. She decides to, in ten years, be able to match what Tina made over those 30 years. After looking at the compounding calculator, it shows that she would have to invest about $27,000 per year to make what Tina earned in those 30 years. Doing this would completely change her lifestyle as well because she would have to save $2,250 a month which would cause her to have to budget herself and possibly have to stop indulging herself in the luxuries she was used to. So you see, making money and being able to spend money on things you want can be done simultaneously if you start investing young.
Also, make sure you spend wisely and when you invest, make sure you invest in items you can make a profit out of. Before buying something, ask yourself if you really need it or if its worth the price. Not buying things that won't put you in debt is also smart, because although it may seem like very little to pay at the start, it can eventually accumulate into an overwhelming amount of money. You also have to be careful with things you buy. Cars depreciate in value very quickly, so it wouldn't make sense to buy a new car that in, a few years, you would have to sell for a lot less, thus losing money. Instead, buy a used car. Real estate is something smart to invest in because houses are appreciating assets and you can rent them to make money or to help pay for that particular houses mortgage. Another smart thing to do is to never let credit card companies make money off of you.
Hopefully this advice will help your financial future.
Sincerely,
Iskra Majewska
1. When I went to the Lego exhibit at the Art and Science Museum I was really surprised at the fact that someone decided to use Lego as a medium to create unique sculptures. I feel like it would take such a long time and it would be so tedious to have to figure out what goes where and how to build something, so I really applaud the artist for that.
2. The photo booth thing they had set up was incredibly cool. And it was especially fun with since I did it with my friends. The whole interactive part of the exhibit was really great actually, like the picture taking at the very beginning and the activities at the end.
