Maria Bruno, senior investment analyst for Vanguard Investment Counseling and Research, said during a webinar that young investors’ challenge is increasing savings early. The power of compounding—or generating earnings from previous earnings—is important to young people, she said.
According to Bruno, although a 3% retirement savings deferral rate is common, it is too low. Twelve to 15% is a more optimal deferral rate for investors. “That can be a lofty goal,” she acknowledged, but she advised investors to start where they can and use automatic escalation if possible.
It is important to implement investment education early, she said. For example, parents can start a college savings fund and show their children how the money accumulates over time. In college, finance classes can make young people more aware of the importance of saving.