A few days ago, we took the time to sit down with Simone Capers and talk to her about how we can plan for retirement and why it’s important to begin investing early; both of which are important pillars in achieving financial fluency. We wrote up the highlights of the conversation and included them below so that everyone can benefit and learn together.
Hey Simone, great to have you here today. I guess before we dive in, I’d love to hear where you’re working, how you got there, and anything else you can think of that might be interesting.
Yeah sure! I went to the University of Miami and now I work in the sports and entertainment industry in Chicago which is where I grew up. I’ve never really had much experience with investing and now that I’m starting to make a living, I don’t know where to begin.
I feel like that’s a problem a lot of people our age have: you’re out of school, you’re earning a consistent paycheck, you know you’re supposed to save, but how?
Exactly, and that’s why I guess my first question would be how much of my paycheck should I start saving – everyone talks about being ready for retirement but I’m only 23, so how much should I really be setting aside and investing?
Well, it all depends on your future goals and how long you have to achieve them. A good goal is 5-10% of your net, after-tax income, but you have to remember that the sooner you start saving, the greater the reward will be. If you earn 5% a year on your investments, every $10 you save now will be worth $16 in 10 years.
Okay, so if I wanted to save, how should I do it? Do I need a trading account or something? People have told me about a Roth IRA but I don’t understand what people are even talking about.
So IRAs, Roth IRAs, and 401Ks are all examples of different retirement accounts that come with taxation benefits. Essentially, the government incentivizes you to save for retirement and you have to take advantage of the opportunity.
401K plans are employer-sponsored savings plans, so what happens is, your employer matches your contribution each year up to a certain amount. Basically, it’s free money, and it’s pre-tax money, so you can deduct any contribution against your overall taxable income. The money in your 401k will only be taxed when you withdraw from your account in retirement.
The other popular types of retirement accounts are IRA’s and Roth IRA’s. The different between the two is again, taxes. You contribute to a Roth IRA with post-tax money, but when you withdraw money from the account, you pay no taxes on the amount or any gains you earn; Traditional IRAs are the opposite where you contribute pre-tax money.
For younger people like ourselves, it’s generally is best to go with a Roth IRA because your tax rate is lower now than it will be in the future.
It’s kind of strange to think about how I want to pay more in taxes and that, that is a good idea. So I guess, once I have all of this setup, how often should I be checking my investments?
It is good to stay on top of your investments and informed about the company’s releases, products, and earnings reports. Above all else though, you don’t want to be impulsive. You don’t want to trade on day-to-day movements by attempting to “time” the market because studies have shown time and time again that a buy-and-hold strategy will work out in the long run.
Awesome. I guess I have to pick out some stocks and leave them for a while then. Any advice on an easy way to stay informed and what should I be looking for in an investment?
When looking for companies to invest in, you should consider the company’s ability to grow their revenue with new products or services. And honestly, I’m going to go ahead and give myself a shameless plug, you have to check out Rapunzl and see what our community is trading. Our top performing portfolios are invested in a ton of diverse companies and that way you can learn by doing rather than reading blogs of people who might not have your best interests at heart.
Follow your friends on Rapunzl and see the sort of trades are making in real time. Looking forward to seeing you on the platform!