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Smart is the New Rich: Money Guide for Millennials by Christine Romans

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Chapter 8Understanding Investments

The secret to investing for young Americans is a four-letter word: time.

You've got it. And, according to Bankrate.com, nearly one out of every three of you has already started investing.

In Chapter 1, you learned about those 401(k) millionaires Fidelity has studied. Their habits were simple. They saved 14 percent of their pay every year, they took advantage of their company's match, and they were not too conservative with their investments.

There are three steps to building peace of mind and wealth: budgeting, saving, and investing. Once you have paid off your high-interest debts and built at least six months of savings, it is time to start investing.

Financial planner Doug Flynn, from Flynn Zito Asset Management, embraces the strategy known as 70-10-10-10. Live on 70 percent of your earnings. Save 10 percent. Invest 10 percent. And give 10 percent to charity or your community.

The first thing to understand about that 10 percent you'll be investing is the mix. You'll want stocks, bonds, cash, and alternative investments. (Financial advisers call this mix asset allocation.)

The younger you are, the more of your retirement money should be in owning shares of publicly traded companies—or stocks. A savings account may feel safe, but in a world with low interest rates, ...

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