By guest blogger the SEC’s Office of Investor Education and Advocacy
Congratulations on investing in your future by pursuing your college education! Now is the time to start thinking about investing in your financial future, especially as you start thinking about the transition from college to the next chapter of your life. World Investor Week (Oct. 1-7) is a great reminder that you can jumpstart your financial future by understanding the power of starting early and investing for the long term.
It Pays to Start Early
Right now you may be thinking, “I don’t make enough money with my part-time and summer jobs to think about saving and investing.” Whether you’re a freshman or a graduating senior, here’s why even small savings today can add up to big savings tomorrow.
Any amount of money can grow over time through the power of compounding. Let’s say each month you contribute $60 to an investment, such as a mutual fund. That’s $2 a day, about the price of a cup of coffee! In 30 years, with an average rate of return of seven percent, you would have over $68,000 – triple the amount of money you’d contributed to the investment! Not a bad start. And consider this, as your earning potential increases, you may be able to contribute more money each month, making that investment grow even more over time. See for yourself with our compound interest calculator.
Here’s more evidence of the power of starting early to reach your goals:
Investing for the Long Term
It may sound crazy to think about retirement right now, but it’s never too early to start building that nest egg for the future. While you may be jumping around from job to job at this stage of your life, you can still contribute to a retirement account. An easy way to get started is to establish an individual retirement account (IRA). IRAs provide tax advantages for retirement savings and you can contribute a certain amount each year based on the maximum amount allowed by the Internal Revenue Service.
Once you get your first “real” job, participate in your company’s retirement plan – like a 401(k) – if one is offered. Don’t wait, start right away – even if you think you won’t plan on staying with the job for very long. It’s a great way to harness the power of starting early!
Also, max out any matching employer retirement contributions if you can. If, for instance, your employer contributes 50 cents for every dollar you save, that’s an immediate 50 percent return. No other investment will give you that kind of guaranteed return. Don’t miss out on this “free money!”