Tips for Grads

Jonathan Clements

THIS IS GRADUATION season at colleges across America. Got a kid heading into the workforce this year? Here are three pieces of advice you might pass along.

First, deal with your financial goals concurrently, not consecutively. In other words, don’t save for the house down payment in your 30s, the kids’ college in your 40s and then turn your attention to retirement in your 50s. If you do that, it will be almost impossible to amass enough for a comfortable retirement. Instead, even as you put aside money for other goals, make saving for retirement a priority from the day you enter the workforce.

Second, strive to keep your fixed living costs low. In particular, look for inexpensive housing. The lower your fixed monthly costs, the more money you’ll have for discretionary “fun” spending, the less financial stress you’ll suffer and the easier you will find it to save.

Third, think carefully about which investments you buy for your taxable account. If you purchase an actively managed stock fund that proves to be a lackluster performer or you make a big, undiversified bet on individual stocks, correcting that mistake could trigger a hefty tax bill. Instead, I’d favor broadly diversified stock-index funds with low annual expenses. These funds shouldn’t produce performance surprises or generate big annual tax bills, so you should be happy to hold them for many decades—and perhaps for the rest of your life.

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