Everyone needs to save for their future, but the traditional ways of doing this are no longer reliable. Private pensions are not only becoming less common, but also clash with the dominant form of career-building among young people. In contrast to the job-for-life paradigm that dominated the labour market in decades past, it’s become common to change jobs every 5 years or less. This relatively rapid rate of job turnover doesn’t give workers much time to accrue any significant pension benefits. More than anything, young people need retirement savings they can take with them from job to job without hassle or penalty. Luckily, there are more ways to accomplish this than ever before.
Saving vs. Investing
Let’s being with the most obvious option: saving. This means simply taking a portion of any money you earn and making sure to not spend it – it commonly involves the use of a separate savings account, but it doesn’t have to. Many banks offer a modest interest rate on savings accounts that grows as you accumulate more money, although it’s nothing substantial. If you choose this route, it means that the bulk of your money will be actual liquid funds that you accumulate yourself over time, growing only in a linear fashion. It’s stable, predictable, and barring catastrophic inflation events, it will always be there for you in the future – but it’s terribly slow and runs a real risk of not amounting to any appreciable sum when you finally need to start spending that money.
Investing, on the other hand, presents a riskier but potentially much more effective alternative. You begin by saving money just as you would in the other scenario, but when you’ve amassed a small sum, you then use it to acquire an asset that will produce money for you over time. Investments can be anything from stocks, government bonds, and even physical commodities or real estate (though these last two tend to require space and maintenance that make them impractical for the average person). Generally, the stock market is where you will get the best returns.
How Can I Start?
Simple saving is easy to do on your own, but first-time investors might benefit from some guidance before committing any money to their endeavours. One strategy is to do your own research on companies or industries that seem to be on the rise financially, then invest in the corresponding stocks. Another good option is to enlist the help of a financial advisor. These professionals can help you tailor a portfolio according to your desired level of risk, and their choices are often more profitable and more stable than those made by a layperson.
One interesting new tool that is especially suited to technologically adept youth is the robo advisor (such as Moneyfarm and Scalable Capital). These systems are entirely digital in nature – there’s no one actively running them behind the scenes, it’s all code and algorithms – so their services are far cheaper than those of traditional human financial advisors. This makes them a good choice for investors who are just starting out and need to retain as much of their capital as possible to get more leverage in the market and establish some financial momentum. You just have to be comfortable using them, which is rarely a problem in younger demographics.
Scraping up enough money for a comfortable retirement is a challenge no matter what you do, but being smart about it makes this task a lot easier on yourself. Don’t worry about not having a pension to count on – plan carefully and give yourself plenty of time for growth and you’ll build wealth much more quickly than you might realize is possible.
Author: Oliver Curtis
Hi there. I’m Oliver. I’m just a young boy from the outskirts of… Okay, that’s a lie, I’m not a young boy anymore, although I certainly feel that way at heart.