Plan for Retirement
Many companies automatically enroll employees into a 401(k) retirement savings plan—or, for non-profit companies, a 403(b)—and young people should try to take full advantage of any employer matching that is available, said Maria Bruno, head of U.S. wealth planning research at Vanguard.
In an ideal world, you would put 10% to 15% of your monthly income into a savings plan. If that isn’t feasible right now, advisors say even 1% to 2% will make a big difference in the long run.
Pay Down Debt
Personal debt from student loans or credit cards is not just a financial strain: It affects your credit score and therefore your ability to apply for other credit cards and mortgages. People looking to pay down debt should focus on what carries the highest interest rate, Bruno said.
The average interest rate for credit cards rose above 19% this year, driven by aggressive rate hikes by the Federal Reserve in an attempt to combat inflation. And short-term financing schemes like buy now, pay later—a risky but popular option among Gen Z—can result in rapidly accruing loan balances and damage to credit scores.
Diversify
For those looking to invest, whether for retirement or more generally, the most important decision to make is their asset allocation: the distribution of their investments between bonds, which tend to be more stable, and equities, which are riskier but may pay bigger returns over time.
A traditional 60/40 split between stocks and bonds may serve investors tolerant of moderate risk, said Michelle Griffith, wealth advisor for U.S. consumer wealth management at Citi. But every individual needs to determine their own risk tolerance by identifying their trigger points: how much of a loss they can tolerate before they feel the need to take action.
Investments should be spread across companies of varied sizes and sectors. Griffith’s younger clients tend to favor crypto and tech, she said, meaning they posted big losses this year while missing out on gains in sectors like energy.
Riskier assets, which also include meme stocks and options trading, are not necessarily red flags, said Kyle McBrien, a financial planner at Betterment—but they shouldn’t comprise more than 5% to 10% of an investment portfolio.
This article was provided by Bloomberg News.