STARTING OUT
Money that gets taken out of your paycheck before you even see it—and is automatically invested in a 401(k) plan—is money you won’t miss.
By investing now, long-term returns can be significantly different compared with putting it off a few more years.
One benefit of diversifying through mutual funds is that the overall risk of a bundle of investments is often lower than the risk of a single investment.
If you’re a recent college graduate, investing might not be a high priority for you. Once you’re earning money, it’s tempting to spend it—especially if you’ve been living on a tight budget for years.
But the key to a better financial future is building wealth. While spending money on travel or going to a concert may be great in the short-term, achieving your longer-term financial priorities will mean investing some of your new salary.
Want a new car or a house? Want to see the world? Hope to marry, have children and send them to college? Plan to retire early?
It’s time to start planning. It all begins with saving and investing. For instance, if you want to buy a house, building your savings by investing on a regular basis through a periodic investment plan may help you reach that goal more quickly. Investing in stocks, bonds and mutual funds offers the potential to grow your investment faster than a simple savings account. Of course, those investments carry the risk of loss. There’s no guarantee that your investments will grow, and you could lose money investing in the stock market.
A thoughtful investment plan balances risk by spreading it out—putting some investment into savings and some into mutual funds, for example.
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1. Put off getting your own place. If you’re still living at home, this may be an excellent time to get a head start on your investment plan. Sharing expenses with a roommate also saves money—and you can start investing modestly with the cash you’re not spending on living expenses.
2. Look for a career, not just a job. As you look to match your skills and joining the work force, consider jobs that have room for advancement and continuing to improve your salary. Will teaching weightlifting at your gym give you a path forward with regular salary increases? If you focus on building wealth with a steady job in a field that offers a path for advancement and a competitive salary, you may be able to build wealth through investing, allowing you to fund more of your long-term goals.
3. Take advantage of your company’s 401(k) plan. Money that gets taken out of your paycheck before you even see it—and is automatically invested in a 401(k) plan—is money you won’t miss. Many employers will match your contribution fully or in part, which can increase your eventual payout exponentially. With most 401(k) plans, you don’t pay taxes on your contributions until you withdraw the money during retirement. What could be easier?
If you work for yourself or own a small business, there are other ways to build your nest egg using a tax-deferred retirement plan.
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If you’re self-employed you can still benefit from a tax-deferred retirement plan
If you’re self-employed, you can open a Simplified Employee Pension Plan (SEP) that may allow you to contribute thousands of dollars each year to a tax-deferred account.
How much are you missing out on every day you don’t invest?
By starting your investment plan now, you may be able to achieve the long-term results you’re seeking with just a fraction of the dollars you’d need to invest.
Traditional IRA versus Roth IRA: What’s the difference?
The main difference between a traditional vs. Roth IRA has to do with how your money is taxed. IRAs are accounts while mutual funds are investments.
4. Start small—but start. You don’t have to start by investing a large amount outside of your retirement plan options. For example, you can automatically invest as little as $50 a month into Thrivent Mutual Funds.1 This automatic investing plan is available whether you’re opening an IRA or a standard brokerage account. Through time and the power of compounding, your $50-a-month investment may contribute significantly to your financial goals.
5. Invest for the future even if you’re paying off student loans. Money might be tight, but the habit of investing is worth cultivating, and the value of time can be powerful. Your long-term returns can be significantly different if you start now rather than putting it off a few more years.
The chart below compares two hypothetical scenarios—one in which the investor starts contributing $100 a month now and stops contributing in 10 years, and the other in which the investor starts investing $100 a month beginning in 10 years and continues for the next four decades.
As the chart illustrates, over a 50-year period with an average annual return of 7%, the investor could earn more over the next 50 years in the first situation—by investing now—compared to the investor who starts 10 years from now—even though the second investor invested more money!
Keep in mind these results are hypothetical and do not represent a specific investment. There’s no guarantee your investment portfolio will match the returns illustrated here, and you can lose money investing in the markets.
The key is the power of time. By starting 10 years earlier, a smaller investment has more time to grow.
Comparative long-term returns based on 7% average annual return with monthly compounding
| Timeframe | Scenario 1: Start investing now | Your portfolio: Account value | Scenario 2: Start investing in 10 years | Second portfolio: Account value |
|---|---|---|---|---|
| Timeframe | Scenario 1: Start investing now | Your portfolio: Account value | Scenario 2: Start investing in 10 years | Second portfolio: Account value |
| Years 1-10 | $100/month | $17,509 | $0 | $0 |
| Years 11-20 | $0 | $35,187 | $100/month | $17,509 |
| Years 21-30 | $0 | $70,714 | $100/month | $52,497 |
| Years 31-40 | $0 | $142,111 | $100/month | $122,809 |
| Years 41-50 | $0 | $283,963 | $100/month | $264,112 |
| Total | $12,000 | $285,595 | $48,000 | $264,112 |
Hypothetical example is for illustrative purposes only. It is not intended to represent the performance of any particular security or product, nor does it take into consideration any product expenses, such as fees or sales charges. The results would be reduced if included.
6. Diversify through mutual funds. Investing in mutual funds is one of the easiest ways for many people to invest. By bundling many stocks or bonds into one fund, mutual funds help individual investors easily diversify their investments. One benefit of diversifying through mutual funds is that the overall risk of a bundle of investments is often lower than the risk of a single investment: if one company’s stock has problems, there are others in the portfolio that may cushion the blow.
Of course, while diversification can help reduce market risk, it does not eliminate it. Diversification does not assure a profit or protect against loss in a declining market. Thrivent offers a wide variety of different types of mutual funds.
7. Consider IRAs, which are also tax-deferred. Whether or not a 401(k) is available to you through your employer, you should consider opening an individual retirement account, or IRA. There are two main types: a traditional IRA, which lets you avoid taxes now—though you’ll pay taxes when you withdraw the money in retirement—and a Roth IRA, where you contribute with money you’ve already paid taxes on.
Setting up a 401(k), an IRA or a mutual fund account doesn’t have to be complicated; one of the key benefits of mutual funds is that you don’t need to manage your own portfolio.
You can pick from a variety of Thrivent mutual funds. If you prefer in-person assistance, consider talking with a financial professional.
1 New accounts with a minimum investment amount of $50 are offered through the Thrivent Mutual Funds “automatic purchase plan.” Otherwise, the minimum initial investment requirement is $2,000 for non-retirement accounts and $1,000 for IRA or tax-deferred accounts, minimum subsequent investment requirement is $50 for all account types. Account minimums for other options vary.
The concepts presented are intended for educational purposes only. This information should not be considered investment advice or a recommendation of any particular security, strategy, or product.
At Thrivent Mutual Funds, we recommend you consult your tax advisor to make sure you’re getting the most out of your investments. Thrivent Mutual Funds and their representatives cannot provide legal or tax advice.
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