10 Retirement and Investing Tips for Graduate Students

Unsure of how best to save and invest your money as a graduate student? Read these ten pieces of advice from personal financial management expert Shahar Ziv.

1. Save early and consistently. The best way to position yourself for long-term financial success is to start putting money away early. Someone who puts away $2,000 each year for ten years will have almost twice as much in savings as someone who waits ten years to start and then puts away $2,000 each year for thirty years (see this chart).
    
2. Take advantage of “free money.” Many employers will match your retirement contributions. (For example, an employer may put in $1 for every $1 you contribute, up to 5 percent of your salary.) This employer match is essentially “free money,” and represents a guaranteed return on your investment. Aim to contribute at least enough to get the full employer match to avoid leaving free money on the table.
    
3. Consider Roth accounts. Roth accounts allow you to save post-tax dollars for retirement. They provide tax-free growth and additional flexibility, compared to pre-tax accounts. Graduate school is an opportune time to contribute to a Roth account, because many students are in a lower tax bracket while in school than they will be in retirement.
    
4. Need a savings target? Aim for 15 percent. If you are looking for a retirement savings goal, aim for a savings rate of 15 percent. (including your contributions and any employer match you may receive). This may sound daunting, but remember that you can work your way up to this rate. Saving something is better than saving nothing.
    
5. Think before you invest. First, make sure you have addressed foundational needs. Build up a three- to six-month emergency fund, pay off all your high-interest debt (such as credit cards), and ensure that you are receiving the full employer retirement match before starting to invest your money.
    
6. Align your risk tolerance and time horizon. It is crucial to match the riskiness of your investments with the length of time you plan to hold the investments. If you will not need the money for a long time (e.g., retirement), you can be more aggressive in your investments. If you will need the money within one to three years, you should be more conservative.
    
7. Do not try to “time the market.” Six of the ten best trading days between 1995 and 2014 occurred within two weeks of the ten worst days. If you try to time the market, or buy and sell based on predictions, you could easily miss such gains. For example, an investor who missed the ten best days between 1995 and 2014 would lose close to 4 percent in annualized gains.
    
8. Focus on mutual funds, not individual stocks. Mutual funds should be the bulk of your equity investments for retirement. Remember: for every stock trade, there is a buyer and a seller, and each thinks he or she made a smart move.”
    
9. Buy low-cost index funds or exchange-traded funds (ETFs). Morningstar Research put it best: “If there’s anything in the whole world of mutual funds that you can take to the bank, it’s that expense ratios help you make a better decision. In every single time period and data point tested, low-cost funds beat high-cost funds.”
    
10. Are you my fiduciary? Ensure that anyone giving you financial advice is a fiduciary, meaning the person has a legal obligation to put your interests first. Read Tara Siegel Bernard’s piece “Before the Advice, Check Out the Adviser” and Ron Lieber’s column “The 21 Questions You’re Going to Need to Ask About Investment Fees” for more valuable advice.