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It’s never too early to start taking steps to improve your finances, especially if you’re a college student or a recent graduate with an entry-level job.
Many financial experts recommend starting to invest as early as you can because the sooner you begin, the more time your money has to grow and the less you’ll need to contribute. For example, a 25-year-old needs to invest just $240 a month at a 9% yearly return to have $1 million by age 65; but if they wait just five years to start investing at age 30, they’ll need to invest $370 a month.
There are many types of investments out there that cater to a variety of needs, but certified financial planner Katelyn Bombardiere says that ETFs are one of the best investments for college students and young professionals.
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An ETF (exchange traded fund) is like a bucket that holds a collection of securities like stocks and bonds. You can invest in an ETF in the same way that you would invest in a stock — by purchasing a share through a brokerage. But unlike stocks, when you purchases a share of an ETF, your money is spread across different investments rather than just one company.
Bombardiere recommends ETFs as an investment for younger people for two great reasons: They don’t cost as much to own as some other assets like mutual funds, and they provide diversification.
“People get caught up in making money fast rather than focusing on ETFs, which aren’t sexy, but they are well-diversified and low-cost,” she says.
Low cost means more of your money will be going toward growing your wealth, rather than pay a fee for investing in the fund. You can figure out how much it costs to own an ETF by looking at the expense ratio. This number is usually expressed as a decimal and represents how much you’ll pay for every $10,000 you invest in the ETF.
The other factor that makes ETFs so appealing — diversification — should be an important part of any investor’s wealth-building strategy. When you diversify your portfolio, you’re spreading out your risk rather than betting all your money on one stock that could end up tanking.
“ETFs are great for students and young professionals who don’t have a ton of money to put into a bunch of different investments,” Bombardiere explains. “If they only have $100, and they invest it in one stock and it tanks, it’s not good. So it’s best to do an ETF that gives them more exposure to a bunch of different stocks.”
That’s not to say that you shouldn’t invest in stocks at all — rather, they should be a portion of your overall investment portfolio.
“People want to try to pick the next Amazon or the next Tesla, and that’s nearly impossible,” Bombardiere says. “People dedicate …….