Best investment options for youngsters

Young investors today who wish to begin a savings plan face a bewildering array of investment options. There are not only thousands of products and services to choose from, there are almost as many different firms and vendors that market them in various capacities.

Fortunately, deciding which types of investments are best is not as hard as it may seem if you're a young person in today's world.

Finding the right answer begins with examining what you want to get out of your money both now and in the future.

Saving for Retirement If you are young, then your greatest financial asset is time. At this point in your life, your primary investment objective for your long-term savings should be growth. Investors in their 20s will have least 40 years over which to accumulate retirement savings.

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Historical data clearly shows that common stock and real estate are the only two asset classes that have grown faster than the rate of inflation over time. This means that most or all of your long-term savings should probably be placed in some form of equities, such as individual common stocks and stock mutual funds, and perhaps real estate, either in the form of a personal residence or a mutual fund that invests in real estate holdings.

It is imperative that you are able to increase your purchasing power in your retirement savings over the course of your life, because you will need every ounce of it that you can muster after you stop working. Of course, IRAs and employer-sponsored retirement plans are the best places to start when saving for retirement.

Most financial experts tell young people to use a Roth IRA instead of a traditional IRA because of the tax-free withdrawals.

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Roth features are also available in many qualified plans such as k plans, and these may also be superior to traditional tax-deferred options that are taxable upon withdrawal at retirement. Ultimately, the combination of tax-free growth coupled with the superior returns posted by equities is virtually impossible to beat over time.

Buying a Home Traditional financial wisdom has usually dictated that a house is one of the best investments you can buy, but whether or not this is true depends upon several variables. The duration of your residence and the current housing market will factor heavily into this issue, as will the current interest rate environment , rental prices and your personal financial situation.

If you plan on living in one place for less than five years, then it is probably cheaper to rent in most cases, because, mathematically speaking, it usually takes at least five to seven years to accumulate enough equity in a home to justify buying one versus renting.

Saving for College If you are still trying to get through school or have not yet started, then there are several other vehicles for you to consider socking money into:. The funds can be allocated between various investment choices and will grow tax-free until they are withdrawn to pay for qualified higher education expenses.

The contribution limits for these plans are quite high and they can also provide gift and estate tax savings for wealthy donors looking to reduce their taxable estates. Coverdell Educational Savings Accounts - This type of college savings account is another option for those who want to take a more self-directed approach to choosing their investments.

Savings Bonds - These are yet another alternative to consider for conservative investors who don't want to risk their principal. The interest that they earn is also tax-free as long as it is used for higher education expenses. Short-Term Investments The alternatives for your short-term cash, such as an emergency fund , are pretty much the same regardless of your age. Money market funds , savings accounts and short-term CDs can all provide safety and liquidity for your idle cash.

The amount that you keep in these investments will depend on your personal financial situation, but most experts recommend keeping at least enough to cover three to six months of living expenses. The Bottom Line The most important decision that you can make as a young person is to get into the habit of saving regularly. What you invest in matters less than the fact that you have decided to invest. The right investments for you are going to depend largely upon your personal investment objectives, risk tolerance and time horizon.

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Sophisticated content for financial advisors around investment strategies, industry trends, and advisor education. The Best Investments For Young People By Mark P. Saving for College If you are still trying to get through school or have not yet started, then there are several other vehicles for you to consider socking money into: A step-by-step guide to planning for your retirement.

The sooner you start, the easier it will be to build a good cushion for your future. It's never too late to start saving for retirement, but there is a "better" time to get it rolling. If you establish these money-saving habits and patiently allow your wealth to build, you will be taking some huge steps forward in making your financial future more secure.

Making an annual financial plan is a smart way to ensure staying on track with your retirement, savings and investing goals throughout the year. The truth is, most people need to save far more.

When money is tight early in your career, saving may seem a waste of time — but even a small amount can pay big dividends, including in peace of mind. Everyone should consider these steps to help them save more money for retirement.

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