Ask: Connie in Colerain Township: My son is 22 and wants to start investing. But I don’t have a lot of experience with it, so I don’t think he can help you much. Can you share some tips?
A: Of course! We are glad that a young adult shows an interest in investing and planning for the long term. And honestly, that’s the first distinction we want to make: Your child needs to understand that there’s a difference between long-term investing and stock picking (or day trading). She’s likely heard of certain apps and websites that let you buy and sell stocks (or cryptocurrencies) on a minute-by-minute basis. But in this case, the only thing that matters is the short-term benefit; In our eyes, this is similar to gambling. At Allworth and on our Simply Money radio show, we promote long-term investing: have a goal, make an investment plan to reach that goal, and then stick with it.
Also, you need to think about both short-term and long-term goals. For any goal two or three years from now, just an old bank account is fine (that money shouldn’t be exposed to any market risk). The same goes for an emergency fund: You must use a savings account for this money, and it must cover at least three months of critical living expenses.
For longer-term goals, like retirement, a simple index fund that tracks the S&P 500 (the 500 largest companies in the US) is a good starting point. And at this age, it’s okay if you own a lot of stocks, since you have decades to ride out the ups and downs of the market. (Also, with the markets currently down, you’ll be ‘buying low’ – count yourself lucky!)
And if you have a 401(k) through work, you should save at least enough to earn the equivalent (if offered). If your employer offers a Roth 401(k), saving in that is an even better idea since you’ll get tax-free growth. If you don’t have a retirement plan through work, you should open a Roth IRA through a brokerage firm like Vanguard, Fidelity, or TDAmeritrade (you can do this even if you have an employer plan). And you should never take money out of retirement accounts early.
Allworth’s advice is that your child should focus on market time, not market time. Consistency and timing will do more for him in the long run than anything else. And while there may be a temptation to go fancy with his investments, simple is often best.
what: Tim from Lawrenceburg: What is your take on having more than one credit card?
A: This really comes down to what you see when you look in the mirror. Because whether or not it’s a good idea depends on you and your credit behavior.
If you are someone who is responsible with one credit card, meaning you pay your bill on time each month and in full, then having multiple cards can be beneficial. You can sign up for different cards depending on the rewards program and use each of those programs to your advantage. In this case, however, you still need to be careful not to increase your spending just because you have more cards and a higher combined credit limit. As we mentioned earlier in this column, it’s critical to keep “debt utilization” below 30% every month.
On the other hand, if you realize you’re not exactly the most responsible with credit, stick with one card for now. Work on changing your habits. Then you can think about ‘graduating’ with an extra card or two.
Here’s Allworth’s advice: Having multiple credit cards can give you more financial flexibility. But doing so is only advisable if you have the proper discipline.
Every week, Amy Wagner and Steve Sprovach from Allworth Financial answer your questions. If you, a friend, or someone in your family has a money issue or problem, feel free to send those questions to [email protected].
Responses are for informational purposes only and individuals should consider whether any general recommendations in these responses are appropriate for their particular circumstances based on investment objectives, financial situation, and needs. To the extent a reader has any questions regarding the applicability of any specific subject matter discussed above to their individual situation, they are encouraged to consult with the professional advisor of their choice, including a tax advisor and/or attorney. . . Retirement planning services offered through Allworth Financial, an SEC registered investment adviser. Securities offered through AW Securities, a registered broker/dealer, member FINRA/SIPC. Visit allworthfinancial.com or call 513-469-7500.
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