Photo of a millennial who is planning for retirement by investing aggressively when she is younger.

Retirement for millennials: Why investing aggressively can pay off

As a young investor, you’ve probably got 3 or more decades to earn money before a traditional retirement age.1 Yet, if you’re like many young people, you may be thinking more about stability or financial independence than long-term growth potential.

"That may be a mistake," says Robert Payne, a financial professional with Principal® in Greensboro, North Carolina. Investing too conservatively when you’re young may leave you financially vulnerable in the future.

Many employers offer 401(k) and 403(b) plans (some with matching contributions). So it can be easier to get started.

3 reasons for investing aggressively when you’re just starting out

Your 20s and 30s are generally the ideal time to consider investing in stocks and other higher-risk investments via your employer’s 401(k) or other retirement plan. Here's why:

1. Time is on your side.

Stocks have historically generated strong returns over long periods.2 What's more, time can be on your side based on historical returns. This means that the earlier you invest the more time you have to potentially see the benefits.

"If you're young, you might not need that money for 30 or more years, so it may benefit you to stay invested in the market," Payne says. "Stocks have historically done well over periods that long."

2. Inflation can still put "safe" at risk.

Inflation is the general increase in prices over time. Even if the dollar value of money in savings accounts never declines—it doesn’t mean your money is safe.

Inflation erodes the purchasing power of that money as time passes—sometimes more powerfully than a market decline. At a historically average 3% inflation rate, the value of a dollar you save today will be cut in half in 24 years.

Even accounts that pay a fixed interest rate may lose ground after inflation. Stocks, on the other hand, historically have outpaced inflation, sometimes by a wide margin.3

3. You can get help.

A financial professional can help educate you on investment risk, so you can make more confident decisions about investing in a retirement plan. If you’re worried about picking the “right” investments, one possibility may be a target date fund (if your organization offers one).

Target date portfolios are managed toward a specific date, which may be the date you plan to retire and expect to withdraw the money. As the portfolio approaches its target date, the investment mix becomes typically more conservative.4

If you want to retire earlier or later than average, you may want to consider a investment option with an asset allocation more appropriate to your situation.

Like financial independence, but FIRE leaves you cold?

Followers of the FIRE lifestyle (financial independence, retire early) live ultra-frugally with the goal of retiring as early as their 30s or 40s. But FIRE isn’t for everyone.

Isak Knivsland, a 24-year-old user experience designer from Des Moines, Iowa, sees the FIRE community as a benchmark. “FIRE sites and message boards give tips and information on saving and spending,” Knivsland says. “But FIRE also incentivizes some weird mindsets. Focusing on financial independence is important, but you just need to find balance.”

What’s Knivsland’s approach to financial independence and investing? A well-stocked emergency fund. “With a full year’s worth of fixed expenses, I’m far more comfortable taking investment risk with the money that I set aside for retirement and investing,” he says.

Know your goal

Investing aggressively is more than just choosing the right mix of investments. Know what you’re investing for and if you're setting enough aside.

"You can't guarantee a certain return, but you do have control over the amount you save," Payne says. "Set a realistic savings goal and stick with it."

What to do next? 

  • Have a retirement account from your employer with service at Principal®? Log in to to see what you’re allocating to stocks. First time logging in? Get started.
  • Got a financial professional? They can help you figure out how investment risk works with your goals of financial independence. If you’d like to meet face to face, find one near you.  

1 Based on the Social Security Administration’s definition of “full retirement age,”

2 Source: Standard & Poor’s

3 Of course, it’s important to keep in mind that any investment option is subject to investment risk. Shares or unit values will fluctuate, and investments, when redeemed, may be worth more or less than their original cost. It’s possible for any investment option to lose value.

4 Neither asset allocation nor diversification can assure a profit or protect against a loss in down markets. Be sure to see the relevant prospectus or offering document for full discussion of a target date investment option, including determination of when the portfolio achieves its most conservative allocation.

About target date investment options:

Target date portfolios are managed toward a particular target date, or the approximate date the investor is expected to start withdrawing money from the portfolio. As each target date portfolio approaches its target date, the investment mix becomes more conservative by increasing exposure to generally more conservative investments and reducing exposure to typically more aggressive investments. Neither the principal nor the underlying assets of target date portfolios are guaranteed at any time, including the target date. Investment risk remains at all times. Asset allocation and diversification do not ensure a profit or protect against a loss. Be sure to see the relevant prospectus or offering document for full discussion of a target date investment option including determination of when the portfolio achieves its most conservative allocation. 

Robert Payne, Financial Representative of Principal National Life Insurance and Principal Life Insurance Companies, Principal Securities Registered Representative, Financial Advisor.

The subject matter in this communication is educational only and provided with the understanding that Principal® is not rendering legal, accounting, investment advice or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.

Investing involves risk, including possible loss of principal.

Asset allocation and diversification does not ensure a profit or protect against a loss. Equity investment options involve greater risk, including heightened volatility, than fixed-income investment options. Fixed-income investments are subject to interest rate risk; as interest rates rise their value will decline. International and global investing involves greater risks such as currency fluctuations, political/social instability and differing accounting standards. These risks are magnified in emerging markets. There is no guarantee that a target date investment will provide adequate income at or through retirement. 

Insurance products from the Principal Financial Group® are issued by Principal National Life Insurance Company (except in New York), Principal Life Insurance Company and the companies available through the Preferred Product Network Inc. Securities and advisory products offered through Principal Securities, Inc., 800-247-1737, member SIPC. Principal National, Principal Life, Preferred Product Network and Principal Securities are members of the Principal Financial Group®, Des Moines, IA 50392.