Starting to invest at a young age is very important and can make the difference of having thousands of dollars when you retire or millions of dollars. The power of having compound interest is what can make you lots of money. Here is an example of how much you could be making; If you start investing at the age of 25, you can put away $4,000 a year, which is not that bad considering the average starting salary is about $40,000, on 10% interest which is how much the S&P 500 has made on average, you would have almost 2 million dollars by age 64. The best investments for young people are long term EFT's or mutual funds with low expense ratios.
Different kinds of Investments: Bonds: A bond is like giving a loan to the government and when it matures you can cash it in and gain interest on it. Bonds are safe investments because the issuers are obligated to pay you back but the down side is that they don't make you a lot of interest and they take a long time to mature.
Certificate of Deposit(CDs): A certificate of deposit is a promissory note issued by a bank. It is a time deposit that restricts holders from withdrawing funds on demand. Although it is still possible to withdraw the money, this action will often incur a penalty.
Stocks: Buying a stock is like buying part ownership of the company and it's assets. Depending on how many shares you buy depends on how much of the company you own. The goal is to buy shares at a low price and sell high so that you will be making a lot of interest. Buying stocks is a high risk but high reward investment.
Mutual Funds:An investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets. Mutual funds are operated by money managers, who invest the fund's capital and attempt to produce capital gains and income for the fund's investors. A mutual fund's portfolio is structured and maintained to match the investment objectives
Retirement Accounts: Roth IRA: An individual retirement plan that bears many similarities to the traditional IRA, but contributions are not tax deductible and qualified distributions are tax free. Similar to other retirement plan accounts, non-qualified distributions from a Roth IRA may be subject to a penalty upon withdrawal.
403b: The features of a 403b plan are very similar to those of a 401k plan. Employees may make salary deferral contributions that are usually limited by regulatory caps.
401k: Caps placed by the plan and/or IRS regulations usually limit the percentage of salary deferral contributions. There are also restrictions on how and when employees can withdraw these assets, and penalties may apply if the amount is withdrawn while an employee is under the retirement age as defined by the plan. Plans that allow participants to direct their own investments provide a core group of investment products from which participants may choose. Otherwise, professionals hired by the employer direct and manage the employees' investments.
What Retirement Account is Right for you? It's hard to say which retirement plan is they best because they all have there advantages and disadvantages. Not everyone is eligable for every retirement plan so that will help you narrow it down. The best advice is to pick one that you can afford and easily maintain on your own.