What are some good and stable long term investment options for someone in their 20s who is creating a retirement plan?
I am looking for investment options while I develop a long term retirement plan.
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Answers ( 1 )
Hello Amir -- there are a lot of options available to you, and your best choice depends on a lot of different variables. But you mention "good", "stable", and "long term", so that rules out a bunch of the possibilities! Money markets, crypto, forex, day-trading -- they're all out!
Good: I assume this means you'd like to grow your investment faster than inflation -- and by enough that you'd notice. Inflation has been right around 2-2.5% for a generation, so you'd need to be 6-10% per year growth before it has a noticeable impact on any duration shorter than a decade.
Stable: I assume this means you don't like the idea of big downswings -- you'd rather have an investment that varied between -5% and 10% per year than one that varied between -30% and 60%.
Long-term: you're in your 20s, so this could literally mean a 70-year time horizon! But the interesting thing here is that long time horizons allow you to get better returns (on average) by accepting less stability. If you had 70 years of returns that are alternated between -5% and 10%, then $100 would grow into $467. But if you had 70 years of alternating -30% and 60% returns, that $100 would grow into $5280. Some folks just can't stand the idea of seeing a number on the screen drop by 30%, though.
My baseline advice to kids just entering the workforce (and I'm not a professional financial planner, so it's just friendly advice) is to keep their expenses lower than their income (whatever their income is), to invest the difference automatically (so they never notice it's gone), and -- as a default investment against which other options can be compared -- to consider the Vanguard Target Retirement Index Fund that's closest to their birth year plus 60. So if you were born in 2000, you'd pick the Vanguard 2060 fund ( https://investor.vanguard.com/mutual-funds/profile/VTTSX ). The target retirement funds are a great balance between US stocks, international stocks, US bonds, and international bonds, and the fee for owning shares in it is quite low. The ratio of those four categories changes over the years, getting less aggressive as you age, until it's become quite stable and passive when you retire.
It starts out composed of 90% stocks and 10% bonds, though, which is not very stable. If you're looking for more stability, you can pretend you're older and go with, say, the 2030 fund. That is much heavier in bonds and thus much more stable in its year-to-year returns. The far end of the spectrum is the Target Retirement Income fund (meant for people in their 70s and older), which is only about 30% stocks and has averaged right around 5-6% returns. Picking out a target fund is really a question of how much risk you want to take.
If you want a suggestion that takes more of your personal information into account, you can ask a private question.