A summer job is a great way for young adults to gain working experience. They can also help teach valuable money habits that help build wealth well into adulthood. Young people need to gain investing experience early in life since many schools do not offer courses on personal finance. Here are some investment strategies young workers can do today using money from a summer job.
Where Young Workers Should Invest
Before anyone starts to invest money, they should define their goals and how long it will take them to reach those goals. Good money habits begin by goal setting, and it can be something as simple as saving enough money for a down payment on a first car.
If young adults want to develop short-term financial goals, they can start by investing in certificates of deposits or income-producing mutual funds. For longer-term goals, young workers could benefit from investing in the stocks of individual companies.
Exchange-traded funds (ETFs) or index funds offer good starting points for younger workers. The fees are much less than investing in individual stocks, and they come with less than risk than buying the stock of one company. Since ETFs track an entire stock index, it spreads out the risk when compared to the volatility of one company.
Index funds are similar in risk to ETFs since their performance is based on how well an overall index performs and not the performance of one stock. So, if one company does poorly on an index, another company could offset those losses by performing well in the same index. Learning how to build a diversified portfolio and limiting risk is an investing tool all young workers can use, whether they hope to build short or long-term wealth.
Learning How to Invest
Many young adults cannot open an investment account if they are under the age of 18. Therefore, parents or guardians will need to assist them with opening an account that is taxable. Opening an individual retirement account (IRA) is a good choice since it allows young workers to choose to invest using their pretax or post-tax dollars. Over time, an IRA can help young workers build passive incomes using money from their summer jobs.
Parents can help the younger generation make better investment decisions by offering to match any return-on-investment (ROI) their children earn. Instead of paying for losses their children might incur from investing, they should offer incentives to help them make informed investment decisions. When parents bail their children out, there is no learning curve since the child will not understand what it means to diversify their portfolios to help reduce investment risks.
Young workers also gain valuable lessons about taxes, and it is not limited to learning about payroll taxes from their summer wages. Teens and young adults will learn that they must pay taxes on any investment income they earn. The gain an understanding of how capital gains taxes work and how much they need to pay Uncle Sam when their investments do make money.
Hamed Wardak currently lives between his home in New York City and On the island of Puerto Rico. Wardak is the son of a former defense minister for Afghanistan. Hamed Wardak is an entrepreneur and recently joined the techno music world, creating, producing, and performing his new artistry in underground techno clubs all over the world. Hamed Wardak is known as Valen of Wicked.