3 key investment tips for professionals at the beginning of their careers

Your first full paycheck as a newly adult often seems like the best kind of adult independence—even if it sometimes pushes you to… Dancing and singing With teenage excitement. But enjoying an adult-level salary — dining out, weekend getaways, and updating your wardrobe — can make it difficult to remember the importance of planning for future needs.

That’s why young professionals should adopt consistent investing behaviors early, before they face difficult financial choices. This way, the habit of investing in your future becomes second nature.

Here are three important investing behaviors that will help young professionals achieve success.

Pay yourself first – through automation

If you plan to save or invest the rest of the money after you pay your bills, you likely won’t put any money aside at all. Put money aside before It starts by burning a hole in your bank account which means you’ll actually have to keep making payments to yourself – rather than letting months of good intentions slide by.

But paying yourself first doesn’t come naturally to most of us, which is why young professionals should set up recurring automated investments. It’s much easier to make a single money allocation decision than to make repetitive decisions about your money every pay cycle. Automatic investing that syncs with every direct deposit of your paycheck means you’ll never miss your invested money.

Adopting this habit early, even if you can only afford a small automated investment each month, will ensure that you always pay yourself first without having to think about it.

Embrace dollar cost averaging

Dollar cost averaging is an investment strategy where you invest the same amount of money in an asset at regular intervals, ignoring market fluctuations. By adopting this strategy, you are not only committing to a regular investment regime, but you are also managing your investment risk.

Here’s how: The goal in most investments is to buy low and sell high. The problem is that it is impossible to know exactly when prices are low or high, so you can guess when to buy and when to sell. Additionally, even if you are absolutely certain that an asset is priced low, you may not have money available to invest while the iron is hot.

With dollar-cost averaging, you buy the same dollar amount of an investment at regular intervals, so you don’t have to worry about timing — and since you’re making a purchase for the same dollar amount each time, you buy fewer shares when prices are high and more shares when be low, causing the average price to decline over time.

For example, let’s say you invest $200 per month. Here’s how this affects your average stock price over six months:

Using dollar-cost averaging as an investment strategy means you paid an average stock price of $7.74 and owned 155 shares after six months. Compare that to investing a lump sum of $1,200 in January. If you did, you would only own 120 shares at a cost of $10 per share, exposing you to more risk of losing the value of the investment.

Invest in long-term disability insurance

As a young adult, your greatest asset is your future earning potential. Unfortunately, Just over a quarter of people currently 20 years old They will become disabled and unable to work for at least one year before they reach retirement age. A year’s loss of income can have a devastating impact on your financial future, no matter when it occurs.

Purchasing long-term disability insurance now can help protect your future finances in the event that you suffer a disabling illness or accident. Although you may be able to access disability insurance as an employment subsidy through your workplace, these are usually short-term disability policies. This means that you will not be covered if you experience a long-term disabling event.

In general, long-term disability insurance costs approx 1% to 3% of your annual salary It will replace about 40% to 65% of your pre-tax income. So, if you make $50,000 per year, you can expect to pay $500 to $1,500 for your insurance policy ($42 to $83 per month), and you will receive $20,000 to $32,500 in annual payments ($1,667 to $2,710 per month) if you become Disabled.

It’s common for people in their early 20s to feel invincible, in part because your body hasn’t yet gotten its footing in the relative advantages of Waffle House over digestion. But investing in long-term disability insurance now will help you get into the habit of carrying this important coverage if you need it in the future.

Lifetime habits start now

It’s important for young professionals to start investing the same way they want to continue. This means prioritizing paying yourself first by automating your investments, using a dollar-cost averaging strategy, and protecting your largest asset—your future income—with long-term disability insurance. Adopting these habits early will make it easier to future-proof yourself throughout your life.