In an era where building generational wealth and securing a better future for the next generation are at the forefront of many people’s minds, financial guru Suze Orman offers a simple yet powerful suggestion: the Roth IRA.
Orman emphasizes the potential of a Roth IRA to significantly impact a young person’s financial future in a July 2023 blog post. She said, “You have a golden opportunity to launch them to their first million dollars.”
She illustrates the long-term benefits of saving early and consistently, noting that a young erson saving $2,500 annually for 50 years could amass over one million dollars tax-free, assuming a 7% annual return on their Roth account.
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Orman suggests an approach to encourage young people to save for retirement, recognizing the challenge of convincing them of its importance. She proposes offering a matching contribution to their Roth IRA, which can be a powerful incentive. She points out that anyone can contribute to someone else’s Roth IRA as long as the recipient has earned income and emphasizes the value of starting the habit of saving early.
To make the concept of compound growth more tangible, Orman recommends using online calculators to visualize how consistent savings can lead to significant wealth over time. She stresses the importance of starting early to maximize the benefits of compound interest.
For those under the age of majority in their state, Orman mentions the necessity of a Custodial Roth IRA, where an adult initially owns the account until the young saver reaches the age of 18 or 21, depending on state laws. She advises starting with a total stock market index mutual fund or exchange-traded fund (ETF) for a diversified investment strategy and underscores the distinction between saving and investing.
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Orman’s advice offers a comprehensive strategy for setting young individuals on a path to financial security, emphasizing the power of early and consistent saving, the benefits of compound interest and the importance of understanding investment fundamentals.
However, it’s important to consider both sides of the coin. While Roth IRAs offer tax-free growth and withdrawals, potential downsides include the absence of an immediate tax break and low maximum contribution limits. These factors might influence the decision-making process for young investors, underscoring the importance of a balanced perspective.
For young investors in their 20s, the emphasis on diversification and the right balance in asset allocation cannot be overstated. A rule of thumb suggested is to subtract your age from 110 to determine the percentage of assets to invest in stocks, with the remainder in bonds, adjusting based on risk tolerance. Diversification across U.S. and international stocks, as well as different cap equities, is more likely to boost long-term growth.
If all this information feels overwhelming or if you’re looking for a strategy that’s best tailored to your personal financial landscape, reaching out to a financial adviser might be your best move. A financial adviser can offer personalized insights and strategies, ensuring that the steps you take today align perfectly with your long-term goals and financial well-being.
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*This information is not financial advice, and personalized guidance from a financial adviser is recommended for making well-informed decisions.
Jeannine Mancini has written about personal finance and investment for the past 13 years in a variety of publications including Zacks, The Nest and eHow. She is not a licensed financial adviser, and the content herein is for information purposes only and is not, and does not constitute or intend to constitute, investment advice or any investment service. While Mancini believes the information contained herein is reliable and derived from reliable sources, there is no representation, warranty or undertaking, stated or implied, as to the accuracy or completeness of the information.
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TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
TORONTO – Canada’s main stock index was little changed in late-morning trading as the financial sector fell, but energy and base metal stocks moved higher.
The S&P/TSX composite index was up 0.05 of a point at 24,224.95.
In New York, the Dow Jones industrial average was down 94.31 points at 42,417.69. The S&P 500 index was down 10.91 points at 5,781.13, while the Nasdaq composite was down 29.59 points at 18,262.03.
The Canadian dollar traded for 72.71 cents US compared with 73.05 cents US on Wednesday.
The November crude oil contract was up US$1.69 at US$74.93 per barrel and the November natural gas contract was up a penny at US$2.67 per mmBTU.
The December gold contract was up US$14.70 at US$2,640.70 an ounce and the December copper contract was up two cents at US$4.42 a pound.
This report by The Canadian Press was first published Oct. 10, 2024.
