Young Investors: Invest Now and Plan for Tomorrow
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What quick market headlines should young investors know first?
Here's your Money Briefing. I'm J.R. Whalen at The Wall Street Journal in New York. Wall Street's steep ups and downs might scare off millennials or prevent them from investing as much as they should. In a moment, we'll discuss simple rules that young investors should follow to prepare for tomorrow in the face of market volatility today. First, some money in market news you should know.
How have 401(k) hardship withdrawal rules recently changed?
If you need to withdraw money from your 401k for hardship reasons, the rules have tilted in your favor. New regulations from the Treasury and IRS now allow employees to make 401k contributions immediately after taking out money for hardship instead of having to wait six months. And beginning in January, employees won't have to request a loan from their 401k before making a hardship withdrawal. The new rules will also allow employees to access matching funds from their employers in addition to their own contributions. U.S.
Why are U.S. companies requesting tariff exclusions on Chinese imports?
companies that import things like frozen fish, electronics, and infant knitted cotton hats from China are among thousands that have filed requests for tariff exclusions from the government. They're seeking relief from a round of $200 billion in tariffs placed on Chinese imports by the U.S. last year, and making the case that they're either unable to find comparable replacement goods outside of China, or that doing so would make the products too expensive for consumers. About a third of the total requests came from one company, an auto parts seller from Minnesota, Arrowhead Engineered Products. As of Tuesday, about 60 requests had been granted, including 10 to Apple, for its Magic Mouse 2, Magic Trackpad 2, and electronic components used in its Mac Pro computer.
Why should 20- and 30-somethings consider staying invested during volatility?
For young investors, putting money in today's volatile stock market might seem no wiser than putting money on the table at a casino. But Wall Street Journal reporter Ann Turgason says that may be short-sighted. So, Ann, a traditional rule of thumb was putting money into stocks and keeping it there was a good way to generate long-term gains. And people in their 20s and 30s, it's really their prime years to put money away and build toward creating a nest egg.
Yeah. So in your 20s and 30s, there's a strong argument to be made that from the perspective of deciding how much to put in stocks versus bonds, that you should be very heavily in stocks. Some people say 90%, even 100%. The reason why is because your future earnings, in theory, are sort of like a bond. And when you're 25 years old, you've got probably another... 35 years or more, 40 years of future earnings, perhaps even more than 40 years. And so that's a whole lot of like bond-like income that's sort of out there in the future. So the argument is that you should be heavily invested in stocks.
How much of a young investor's portfolio should be in stocks versus bonds?
I mean, you know, the reality is that if you're not going to need that money for 40 years, you can also arguably withstand the ups and downs of the market if you just basically ignore what the market's doing.
And low returns will also have less of an impact on a younger investor's portfolio.
Right, because a lot of the value of what you're going to accumulate is in your future earnings.
What simple allocation and risk tests can help young investors stay calm?
Inevitably, there are going to be market drops and corrections. And while those events may chase some investors away, history proves that those are the best times to be sure that you're in the market.
If you try to time the market, which is to sort of try to sell when things start to get volatile and then jump back in at the right time, it's really hard to pick those two times well. And if you are out of the market when it has, you know, really strong returns, your long run portfolio is probably going to be fairly damaged in comparison to sort of just staying in the market and riding out the ups and downs.
And then for millennials and people in their 20s and 30s, they really don't want to wait too long because the lower returns will have more of a negative effect on a person's wealth accumulation the closer they get to retirement.
Yeah, that's right. So if you're within, you know, five or 10 years of retirement or you're actually you just retired or you are retired and you experience like a sharp drop in the value of your portfolio, that's a lot more painful at that point than it would be when you're, you know, 20, 25 and you have 40 years to make up for those losses.
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Chapters
7 chapters
1
What quick market headlines should young investors know first?
0:05–0:26
2
How have 401(k) hardship withdrawal rules recently changed?
0:26–0:57
3
Why are U.S. companies requesting tariff exclusions on Chinese imports?
0:57–1:50
4
Why should 20- and 30-somethings consider staying invested during volatility?
1:50–2:57
5
How much of a young investor's portfolio should be in stocks versus bonds?
2:57–3:18
6
What simple allocation and risk tests can help young investors stay calm?
3:18–4:24
7
When should younger savers use robo-advisors, target-date funds, or a human advisor?
4:24–7:23
Speakers
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