The Graduate’s Guide to Wealth: 5 Reasons Why Smart Investing Starts Now

For many new graduates, the transition from student life to the working world is filled with new experiences and challenges. From landing that first job to managing living expenses and paying off student loans, the idea of investing might seem like a distant priority.

Amidst all this, diving into the world of investing right now can be one of the smartest financial decisions a new graduate can make. Not only does it set the stage for long-term financial success, but it also leverages the advantages that come with starting early. Here’s why embracing investment opportunities fresh out of school can transform one’s financial future.

1. Building Wealth Over Time

Investing is a key strategy for building wealth over the long term. Unlike saving, which typically involves putting money into low-interest accounts, investing in stocks or bonds offers the potential for higher returns by helping grow wealth significantly over time. Starting investments early on can help a new graduate take advantage of the market's long-term upward trend and mitigate the impact of short-term market volatility.

As shown below, $10,000 invested in the S&P 500 30 years ago would now be worth over $216,000.

Now, compare this to $10,000 invested 20 years ago, which grows to just over $71,000.

An investor putting just $10,000 in the S&P 500 was able to gain an additional $145,000 by putting this money to work 10 years earlier.

One of the most compelling reasons to start investing early is the power of compounding. Compounding is the process where the returns on your investments generate their own returns over time. The earlier you start, the more time your money will have to grow.

2. Developing Financial Discipline

Beginning to invest early instills financial discipline and encourages a habit of regular saving and investing. This discipline is essential for financial health, helping graduates learn to budget effectively and prioritize financial goals. Consistently setting aside a portion of income for investments can lead to better financial habits and a more secure financial future.

3. Achieving Financial Goals

Investing can also help new graduates achieve financial goals when buying their first home, starting a business, or funding further education. By starting early, the growth of necessary funds can happen faster, and with less financial strain. Setting clear financial goals and investing towards them can provide a sense of purpose and direction in financial planning.

It’s important to remember that investing in assets that are aligned with your goal is essential. For instance, cash to fund short-term goals is typically invested in money markets or bonds, and for longer-term goals, cash is usually invested in stocks. Individual circumstances vary and there is no one-size-fits-all solution, so it is important for an investor to discuss their specific circumstances with their financial advisor.

4. Mitigating Risk Through Time

Starting to invest early allows an investor to take advantage of a longer investment horizon, which can help mitigate the risks associated with market volatility. Younger investors have more time to recover from market downturns, allowing them to ride out short-term fluctuations and benefit from long-term growth trends. This longer time frame can also allow for a more aggressive investment strategy, which yields an expectation of higher returns.

­­While significant market pullbacks aren’t easy for even a long-term investor to stomach, a diversified portfolio with a disciplined investment approach allows for the investor to withstand bear markets and reap the rewards of bull markets over time.

5. Benefiting from Tax Advantages

Many investment accounts, such as Roth IRAs or traditional IRAs, offer tax advantages that can enhance the growth of investments. Contributions to a traditional IRA are generally tax-deductible and grow tax-deferred, so taxes are not paid until cash is withdrawn from the account. Roth IRA contributions are funded with after-tax money, and they can grow tax-free. Taking advantage of these tax benefits can significantly boost the overall returns on investments, making it even more beneficial to start investing early. And depending on one’s circumstances there are advantages to investing in one, or both, of these types of accounts.

All in all, the importance of starting to invest as a recent graduate cannot be overstated. The combination of compounding returns, long-term growth potential, risk mitigation, and financial discipline makes early investing a powerful strategy for building wealth and securing a stable financial future. By making informed investment decisions and taking advantage of available resources and opportunities, recent graduates can set themselves on a path to financial success and independence. The best time to start investing is now, and the benefits will compound with each passing year.

VeraBank Wealth Management is Here to Help

The benefits of working with VeraBank Wealth Management are multifaceted, encompassing personalized planning, investment expertise, education, emotional support, estate planning, and time efficiency. By leveraging the knowledge and experience of our advisory team, individuals can build a robust financial foundation, navigate life’s uncertainties, and work towards achieving their long-term goals.

To learn about VeraBank Wealth Management services and how we can support your wealth management needs, connect with our team, or explore our services.

 

Disclosure
This document serves as a general communication intended solely for informational purposes. It aims to provide educational content and does not constitute a recommendation for any specific investment product, strategy, or plan feature. The examples provided are generic and hypothetical, used for illustrative purposes only. Before making any investment or financial decisions, it is advisable to seek personalized advice from your own financial, legal, tax, and other professional advisors, taking into consideration your individual circumstances. Past performance and outlooks do not guarantee future results.

Additionally, please note that securities provided by VeraBank Wealth Management are not deposits of VeraBank, are not FDIC insured, have no financial institution guarantee, and may lose value.