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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This article Suze Orman Says You Have A ‘Golden Opportunity’ To Make Your Kids Millionaires With This Simple Yet Little-Known Investment Strategy originally appeared on Benzinga.com
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