For the past 15 years, my children and I have enjoyed the same Father’s Day tradition. They take me to McDonald’s (MCD) for my annual caloric splurge — a Big Mac, fries and large Coke.
It’s a bit of a ritual, but trust me — I appreciate every bite.
This year, though, I want to turn the tables around and actually offer up something to my children for Father’s Day: a little advice.
Both my daughter and son are in the early stages of their careers, and both are in the process of thinking long-term about retirement, even if its a long, long way away. So here’s my advice for them … and for your children as well:
Save, Save, Save
It’s difficult to take cash out of your own pocket. Interest rates are piddling. And long-term, it’s really hard to visualize a small amount of money now growing into a meaningful sum later. However, those interest rates will eventually tick up, and thanks to the magic of compound interest, a fraction of your paycheck set aside today will amount to more than a hill of beans tomorrow.
This means putting whatever you can into a company 401k, and if you can afford to max it out and then some, opening an IRA and contributing regularly to that, too. You don’t have to max out either or both, though, to enjoy the immediate benefit of tax-free status, so if you have to, start small and increase your contributions as your budget allows.
If you’re looking for options early on, Alyssa Oursler points to the benefits of target-date funds to get you started.
Become an Active Investor
If you’re able to open an IRA, remember again that you can start out small. You don’t have to plunk down a ton of money, nor do you have to try to hit your picks out of the park at your first couple at-bats.
Even for youngsters, I would suggest big-name, highly liquid dividend stocks, and right now specifically, I would get into Coca-Cola (KO), Cisco (CSCO) and Microsoft (MSFT). All trade for less than $40 per share, which makes them more accessible on a nominal basis to investors with a small nest egg.
They also trade under 20 times earnings, which to me suggests they are at least fairly valued. And perhaps most important, all three are solid dividend payers with yields north of 2.65% and histories that would suggest continued dividend hikes for years to come, providing you a growing source of income for your early-stage portfolio.
Keep Your Credit Clean
A good credit score is imperative for a variety of reasons. First, of course, is access to credit, and lower rates of interest on that credit. You can’t rent that first apartment, car or home without a solid credit history.
Another reason to keep up your credit is that some employers now look at that history and — unfairly or not — make hiring decisions based on the information. (And by the way, watch out what you post on Facebook, too, for the exact same reason.)
So, make sure you establish credit — a credit card is one of the most basic ways to go here — then stay current on paying that as well as other bills and obligations.
Live Within Your Means
Now that you’ve got the credit history going, watch your expenses. If you can’t pay off your credit card bill (not the interest, but the whole bill), you’re spending too much. And those balances (and interest) build up. The aforementioned magic of compounding in saving turns into poison when it comes to debt.
If you haven’t talked to your children about this already, let them know that they have to take charge of their retirement sooner than later, and that they’re much better off doing it sooner. Encourage them to ask questions, stay informed and be active.
And happy Father’s Day to you all.
Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing, he was long MSFT.