Millennials are now saving money like ever before-even though they will retire many years into the future. A study conducted by Fidelity Investments in 2016 concluded that 62 percent of young adults have investment accounts and 60 percent of them have started to save for their retirement. The study, named Millennial Money Study estimated that almost one-third of the millennials were owners of mutual funds. Among young investors, 45 percent of the young investors hold these funds through their retirement plan-which is sponsored by the employer. The study was conducted in 2015.
The time frame is important
Investing when young (the 20s and 30s), means ample time is available and it should be used to wrest the advantage. According to Jeremy Torgerson of nVest Advisors, time spent in market is much more important compared to timing the market. It makes more sense to do disciplined savings and patiently weather market swings than trying to select the best fund. He said that the primary mistake young investors make is that they adopt a too much conservative strategy and forget how things will play out in the future decades.
Tax efficiency is important
It is important to make clear decisions as to where you place your investment dollars. This is as important as selecting the right fund when viewed in the light of tax liability. There is a need to be aware of differences when investing in the mutual funds via taxable investment amount and qualified retirement plan. Matt Gulbransen of Callahan Financial Planning Corporation said that when it comes to retirement plans which are supported by the employer, tax efficiency of a few particular investment vehicles does not count.
To give an example, when it comes to 401(k), there is tax deferred growth and the contributions get deducted from taxable income for that year. Regardless of the investment, taxation will not kick in unless the individual beings to make the qualified distributions after retirement. This remains true in case of standard individual retirement account. Investing in mutual funds through a Roth IRA implies using the after-tax dollars. It follows that there will be zero added tax consequences after the individual start to make withdrawals from the account. In case the person is investing outside the IRA or employer’s plan, there could be extremely different tax implications. The fund fees should be evaluated too.