Question

Convince college students to start investing for their retirement early. It should compare the wealth outcomes when starting at 20 versus starting at 40 and demonstrate the impact on the final portfolio when investing in riskier/higher return financial instruments (compare 2-3 alternatives like ETFs, stocks, bonds) rather than keeping one’s money in low-interest-bearing savings accounts.

Answer 1

Students should start investing at the age of 20 or their early twenties. Because of following reasons:

• When you are in your twenties, you are not married and you do not have kids so you can save a lot money and this is the best time to invest your savings as there are less expenditures. You should save now for future so that you can meet your short term goals like marriage, kids, building a house, car etc.
• You should invest for you retirement because future is uncertain, you need a good income in your future to meet the health expenses and to spend your life with joy. If you invest at early age for retirement, you need to pay lower premiums and charges as per you age.

Impact on the final portfolio when investing in riskier/higher return financial instruments rather than keeping one’s money in low-interest-bearing savings accounts:

Investing into stocks, bonds and ETFs are riskier than investing into fixed income securities. One get higher returns when he/she invests money into stocks, bonds and ETFs. There is high return with high risk and vice versa. You should have patience and you should invest for long term for better returns. If you are afraid of risk then you can diversify your portfolio by investing into different asset class. People who are risk averse and are in their twenties or thirties, can invest into Stocks, bonds and ETFs.

If you invest into fixed income securities, there is no or low risk but on the other hand, return is also lower. People who seek a regular income and who cannot take much risk, fixed income securities are the best alternative.