Today at TILE we were talking about making investment decisions for the future – how do you know when to invest money, where to invest it, and how much?
In the article, Steve (the father) encourages his 17 year old son to open a Roth IRA (see glossary). In the midst of being busy, watching the markets decline and watching his own portfolio decline in value, Steve delays the decision to take his son to open an IRA. Here were my takaways:
- Not all investment firms and advisors are the same. The best advisors are those that recognize that all investors are unique too. Just like with doctors, it can often help to get a second opinion (and because of this Isaac found a firm that would open an IRA account for someone under 18).
- The decisions you make as a 15-25 year old will be vastly different than the decisions made by someone in their 40s, 50s or 60s. Investment decisions are influenced by your time horizon – the more time you have to invest (e.g. before you need or want the money), the more risk (and potentially the higher return) you can take. In general, and history does suggest, that greater risks (e.g. investing in stocks versus bonds) lead to higher returns.
- Your input matters! Where you put the money (how you allocate it) reflects your goals and tolerance for risk. In this story, Isaac chose to diversify (e.g. put it in more than one place) in order to 1) meet two goals (have no debt after college and have a nest egg for retirement) and 2) to reduce the risk in this current market.
What the article didn’t talk about, and we talk about all the time, is how important it is to have someone who you feel comfortable speaking to about these topics. Isaac was lucky because his dad took the time to introduce him to a Roth IRA; some people aren’t so lucky.
For some of the TILE community, there is little concern about paying off college loans or if there will be enough for retirement. Nonetheless, these are important issues – thinking about the future, asking yourself to weigh the pros/cons about risk and return, and making sure you get good advice. Come to think of it, those issues are important in many places besides finance.
Wall Street Journal: Faith in the Future: Isaac Opens an IRA
- Amy