If you’re one of the “millennials” — the generation that began in the early 1980s — you are still in the early stages of your career. Retirement must seem like a long way off — yet, it’s never too soon to start planning for it. At the same time, though, you may also have shorter-term goals. Can you make progress toward your near-term and long-term objectives at the same time?
Yes, you can — but you’ll need to match your short- and long-term goals with the appropriate savings and investment vehicles. For example, one of your most important short-term goals may be purchasing a house, so you’ll need to accumulate a certain amount of money by a certain time — perhaps in three to five years. Therefore, you won’t want to risk your down payment on an investment whose price will fluctuate — and whose value may be down just when you need the money. Consequently, you may want to look for a shorter-term investment whose objective is preservation of principal. Typically, with these types of vehicles, the shorter the term, the lower the interest rate — but since your goal is basically to have a certain amount of money available at a certain time, you might be less interested in what return you’ll get on this particular investment, as opposed to the return you might hope for from other, longer-term vehicles.
In fact, while you are saving for your down payment on your home, or for other short-term goals, you also need to be thinking long term — that is, you need to save as much as you can for your eventual retirement.
Since you are still in the early stages of your working life, you have an enormous asset going for you: time. By starting to save for retirement now, you have more time to save than you would if you waited another decade or so. Plus, since you have so many years to go until you retire, you can afford to put a reasonable percentage of your investment dollars into growth-oriented instruments, such as stocks or stock-based investments. They may carry more risk, including the risk of losing principal, but they also offer greater reward potential than, say, fixed-income vehicles such as bonds. And holding growth investments for the long term can help you look beyond short-term volatility.
You can start a long-term investment program by investing in your 401(k) or other retirement plan offered by your employer. These plans usually offer a variety of investment options, including several growth-oriented accounts. Plus, any earnings are typically tax-deferred, which means your money could grow faster than if it were placed in an investment on which you paid taxes every year. So try to take full advantage of your employer’s plan — at a minimum, contribute enough to earn a match, if one is offered. Then, every time your salary goes up, boost your contributions.
With discipline and perseverance, you can move toward both your distant and imminent goals. And that’s the long and the short of it.
Doug Drost is a certified financial planner for Edward Jones, 2262 Reno Highway, in Fallon.