This Is the Best Place to Invest Money Early in Your Career

When it comes to investing, the best thing you can do is start. Early in your career, you have access to one of the most critical assets in investing: time. Because not all investment accounts are created equal, you should know which ones are best suited for specific purposes.

Here is the best place to invest your money early in your career.

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Take advantage of a Roth IRA

If you're a long-term investor, you're likely focused on making sure you're financially comfortable well into your retirement. Luckily, retirement accounts are designed to let you invest for retirement while receiving special tax breaks. While many jobs offer 401(k) plans, fewer people take advantage of IRAs.

There are two types of IRAs, traditional and Roth, but you should consider taking advantage of a Roth IRA early in your career because of tax benefits and eventual income limitations. You contribute after-tax money to a Roth IRA. The money grows tax-free until you decide to withdraw it when you retire. You can start making unlimited withdrawals at age 59 1/2. Unlike a 401(k), there's no required minimum distribution.

Roth IRAs also have income limits put in place that restrict people over a certain income level from contributing. For tax year 2022, single filers making over $144,000 and married couples (filing jointly) making over $214,000 annually are ineligible to contribute to a Roth IRA.

Your salary is likely to be lower early in your career, so you'll want to consider taking advantage of the account while you're eligible. A lower salary will land you in a lower tax bracket. Paying income taxes on your money while you're in a lower tax bracket means you won't have to pay higher taxes when you withdraw it in retirement.

By contrast, you contribute pre-tax money into a 401(k), and a traditional IRA operates similarly. Instead of having your money grow tax-free, you get to deduct your contributions from your taxable income (your income dictates how much). Because you get the tax benefit on the front end, you'll pay income taxes on the withdrawals — which are mandatory at age 72 — in retirement.

Utilize index funds

With a 401(k) account, your provider gives you investment options to choose from. However, a Roth IRA functions like a brokerage account in that you can buy any company's stock or exchange-traded funds (ETFs). Since you have access to this range of investments, you should consider taking advantage of index funds.

Index funds are like a basket of investments in one single investment. Instead of researching and purchasing the stock of every company you're interested in individually, you can purchase an index fund that consists of many different companies. For example, the S&P 500, one of the most popular index funds, consists of the 500 largest companies in the U.S. by market capitalization.

Being able to purchase multiple companies at once — whether by size, industry, or social initiative — can give investors access to instant diversification, which is one of the key components of a good investment portfolio.

Allow time to do a lot of the work for you

More than anything, you need to take advantage of time and compound interest, and no other account type helps you do that more than a Roth IRA, primarily because you've paid taxes on the money, and it gets to compound tax-free. Even if you only invest your money in an S&P 500 fund (which historically returns around 10% annually), here's how much you'd have in 30 years at varying monthly contributions to your Roth IRA:

Monthly Contribution
Interest Rate
Account Value After 30 Years



$1.97 million


$3.94 million

Data source: Calculations by author.

Of course, you'd get the same results if you did the same thing in a regular brokerage account, but the difference is the money in a Roth IRA will be tax-free when you withdraw it. If you wanted cash from the assets in your brokerage account, you'd have to sell them, which would trigger capital gains taxes.

Depending on your tax bracket, this could mean paying up to 20%. If you make $100,000 — putting you in the 15% capital gains tax bracket — and need to withdraw $1 million over time, you'll pay $150,000 in taxes.

Slow and steady wins the race. If you utilize dollar-cost averaging, make consistent contributions into your Roth IRA, and let compound interest work its magic, chances are you're going to be financially comfortable in your later years.

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