College students and recent graduates have plenty of things to worry about. Finding employment is a key concern, as is securing a financial future. Below are five key pieces of advice they should consider following.

SEE: A Beginner's Guide To Managing Your Money

Open a Brokerage Account and Buy Stocks
In a recent interview, billionaire investor Warren Buffett stated that he has been buying stocks his entire life and that stocks in general are one of the best asset classes to invest in. An important caveat is that investing in stocks could require a very long investment time horizon to see a good return, but this should be of little concern to teenagers, because they have one of the longest investing timeframes of any demographic out there. Stock returns are one of the highest-returning classes out of all investment options.

An adult will be needed to open an account for a teenager under the age of 18. These are known as custodial accounts, but can be transferred over outright when the teenager reaches adulthood. A custodial brokerage account is a great option to help a young person become familiar with investing. These accounts are taxable, but buying into some great companies and holding them for years on end will help minimize the payment of capital gains, which must be paid only when a stock is sold at gain. Holding on to it allows unrealized gains to build indefinitely.

SEE: What You Need To Know About Capital Gains And Taxes

Consider Tax-Advantaged Accounts
Again, a custodial brokerage account is likely going to be the most logical and straightforward option for a teenager to open, but those with jobs have the option of opening a individual retirement account, or IRA for short. The first stipulation to opening an IRA is the person must be employed. Part-time and hourly work does apply, which is what most teens are going to be focused on. In this case, opening an IRA allows the teen to put pre-tax dollars into a savings vehicle. These investments grow on a tax-deferred basis until retirement. The assets can be tucked away until required minimum distributions take hold around age 70, leaving teens with more than 50 years of growth before taxes need to be paid.

SEE: Tips On How To Use IRAs To Boost Retirement Savings

Consider a Roth IRA
Roth IRA accounts are also an option. In contrast to a traditional IRA, taxes are paid up front, but then the account is not required to pay taxes when the money is withdrawn. The main advantage here is that as a teen tax rates are likely to be extremely low, which stems from the fact that work is likely not full time. Current Roth IRA contribution limits are around $5,000 annually, which is still plenty for a teen. Another benefit is that required minimum distributions are not required, as they are with a traditional IRA.

Consider All Your Investing Options
There are many asset classes beyond stocks that teens might want to consider. Mutual funds can be invested solely in stocks, but let a professional manager take care of the individual security selection. The other more traditional asset class is bonds, which can also be managed for total return and boost growth beyond the minuscule yields that most bonds pay these days. Alternative assets can also boost growth potential, but teens need to be careful to pick among hedge funds, private equity, as well as derivatives to boost returns over the long haul.

SEE: How To Pick A Good Mutual Fund

Learn Your Own Investing
Do-it-yourself is a worthwhile endeavor that can save a young person thousands and even millions of dollars over his or her lifetime. Keeping costs low and finding investments that appreciate in value are extremely important factors in achieving financial independence. Some financial advisors charge too much for their services and diversify into too many investments. For these reasons, learning to be your own financial advisor makes sense.

The Bottom Line
Achieving financial independence is easier said than done. The majority of Americans save far too little and are caught in their 50s or 60s with inadequate savings for retirement. But there are others who have had a long-term plan and saved diligently through their working years while living below their means. Avoiding debt is another key component to being able to enjoy one's retirement with sufficient savings levels.

Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: First Trust Tactical High Yield

    Find out more about the First Trust Tactical High Yield fund, a debt security-focused ETF designed to produce high income.
  2. Mutual Funds & ETFs

    ETF Analysis: SPDR Barclays Short Term Hi Yld Bd

    Find out about the SPDR Barclays Short Term High Yield Bond ETF, and explore detailed analysis of the fund that tracks short-term, high-yield corporate bonds.
  3. Mutual Funds & ETFs

    ETF Analysis: SPDR Barclays Short Term Corp Bd

    Learn about the SPDR Barclays Short-Term Corporate Bond ETF, and explore detailed analysis of the exchange-traded fund tracking U.S. short-term corporate bonds.
  4. Mutual Funds & ETFs

    ETF Analysis: Vanguard Intermediate-Term Bond

    Find out about the Vanguard Intermediate-Term Bond ETF, and delve into detailed analysis of this fund that invests in investment-grade intermediate-term bonds.
  5. Investing Basics

    What to Cut From Your Portfolio Right Now

    Owning stocks may shortly become too scary for your portfolio. Here's why, and here are some alternatives.
  6. Professionals

    Top 4 Ways to Avoid Muni Bond Mistakes

    Muni bonds are often perceived as safe investments. But it's important to do some thorough research before investing.
  7. Investing

    6 Reasons Why Every Investor Should Consider ETFs

    Once you understand the benefits of ETFs, you’ll see how they could be an exciting and smart way to help meet your financial goals. Here some key facts.
  8. Bonds & Fixed Income

    Explaining Make-Whole Calls

    A make-whole call enables a bond’s issuer to pay off a bond before it reaches its maturity date.
  9. Mutual Funds & ETFs

    What's The Difference Between Bond & Equity ETFs?

    Learn how different stock ETFs and bond ETFs are, though they actually have quite a few things in common.
  10. Investing

    How Does The Eurobond Work?

    No, the Eurobond is NOT from Europe, and is different from EurobondS! Here’s how a Eurobond works, its benefits and its risks.
RELATED TERMS
  1. Discount Bond

    A bond that is issued for less than its par (or face) value, ...
  2. Credit Rating

    An assessment of the credit worthiness of a borrower in general ...
  3. Long-Term Debt

    Long-term debt consists of loans and financial obligations lasting ...
  4. Accelerated Return Note (ARN)

    A short- to medium-term debt instrument that offers a potentially ...
  5. Next Generation Fixed Income (NGFI) ...

    A Next Generation Fixed Income (NGFI) manager is a fixed income ...
  6. Next Generation Fixed Income (NGFI)

    Next generation fixed income is an innovative approach to investing ...
RELATED FAQS
  1. What is the relationship between the current yield and risk?

    The general relationship between current yield and risk is that they increase in correlation to one another. A higher current ... Read Full Answer >>
  2. How does the bond market react to changes in the Federal Funds Rate?

    The bond market is highly sensitive to changes in the federal funds rate. When the Federal Reserve increases the federal ... Read Full Answer >>
  3. How do I use the holding period return yield to evaluate my bond portfolio?

    The holding period return yield formula can be used to compare the yields of different bonds in your portfolio over a given ... Read Full Answer >>
  4. What is the relationship between current yield and yield to maturity (YTM)?

    Both the current yield and yield to maturity (YTM) formulas are methods of calculating the yield of a bond. However, these ... Read Full Answer >>
  5. What is a 'busted' convertible bond?

    In finance, a convertible bond represents a hybrid security that offers debt and equity features and risks. While a convertible ... Read Full Answer >>
  6. How can I use the holding period return yield to determine whether or not I should ...

    Use the holding period return yield formula to determine whether the time is right to sell your bond. With this calculation, ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!