As the economy improves, millennials who entered the workforce during the recession are beginning to enjoy more economic stability. For many, that means the freedom to worry less about making money, and to start thinking about saving and investing for their future.
In fact, the millennial generation shows a propensity and eagerness to invest earlier than previous generations, according to the July TD Investor Insights Index.
Here are four easy steps that can get you started on your path to becoming an investor.
1. Save up
Savvy investing begins with saving. A good rule of thumb is to set aside a rainy day fund that can cover three months to a year of living expenses.
“You want to have that money in cash before you start to look at investments,” says Carleton English, co-founder and COO of Belus Capital Advisors in New York.
A lot of expense-tracking apps have popped up over the years to help categorize where money is spent and how to budget accordingly. Take the time when you’re saving to learn about the market too. Sites like Investopedia and Wall Street Survivor allow you to invest with fake money, and provide free tutorials to experiment with and learn about the stock market at no risk.
2. Maximize retirement savings
“Once you have your savings set, you may want to look into your company’s 401(k) plan if they provide one,” English says. “If your company matches your contributions, you should be more inclined to participate to at least the level of your company’s match. An employee match is basically free money and one of the few times in investing you’re guaranteed cash.”
Aim to maximize the amount going into the account. If you can’t invest the full amount, do your best to meet the minimum required for employer match.
If your company doesn’t provide a matching program, English says a 401(k) might not be your best bet. But you still need to save. In this situation, English recommends contributing to something like a Roth IRA account, where you invest only after-tax dollars, allowing you to make withdrawals in retirement that are likely to be income-tax free.
3. Set and monitor your goals
Along with building up a savings cushion, try to keep debt to a minimum while paying down the balance on any student loans.
After that, it comes down to deciding what’s important to you. Talk to your family, mentors and friends. Gather a strong sense of what you care about, both in the immediate and long-term future. Maybe that’s a trip to Italy, a car or a house.
This idea will also help pinpoint your investment strategy. As a general rule, the closer or more necessary a goal, the more certain you want to be of an investment. If you’re investing over the long run, however, you can be more aggressive with risk.
4. Begin investing
Consider index funds to start. These are a type of mutual fund that tracks a particular segment of the market, such as the S&P 500. They provide a quick and simple way to get a diversified portfolio, which should ultimately mitigate your investment risk. Index funds also have reduced fees because they are not actively managed.
“It’s a better bet while you’re young and learning your way around the market,” English says. “For people who don’t have a lot of money to gamble with, they’re looking at slightly more predictable returns than otherwise.”
When it comes to investing, millennials have something invaluable working in their favor: time. Practice good financial behavior now, and smart investments compounded over the years can get you where you want to be and beyond.