CLOSE
iStock
iStock

Got 15 Minutes? How You Can Start Investing Today

iStock
iStock

If you’re under 40, committing to the habit of investing a percentage of your income—even a little bit—is the most important financial move you can make for your future self.

Yes, you undoubtedly have more immediate goals than saving for retirement. But someday, many years from now, you will no longer want to get up and go to work every morning. And unless you want to spend old age in poverty, you’re going to need a good-size nest egg.

On Money Under 30, we recently hypothesized that a 30-year-old today will need $2 million to retire—accounting for inflation, that would have the same purchasing power as about $750,000 of today’s dollars. Along with Social Security, that should be enough to maintain a modest but comfortable lifestyle, however long you live (hopefully a long time). Advancements in healthcare and longer life expectancy are just two reasons we need to save even more for retirement than our parents. 

The good news? Time is on your side. You’ve likely seen graphs illustrating how much investments can compound over several decades. If you’re lucky enough to earn an average annual return of between 7 and 8 percent, your investments will roughly double every 10 years. So if you start with $10,000, after 10 years you will have about $20,000; after 20 years, $40,000; after 30 years, $80,000; and after 40 years, your single $10,000 investment could be worth over $180,000. This calculator will let you test your own scenarios. 

Yes, investing is intimidating. And, at times, scary: The stock market goes up and down, and nobody wants to lose money. But when you’re young, that doesn't matter as much. You can have a bad year. Or several. All that matters is that you’re in the game and you stay in the game. Because, in the long run, your money will grow. 

SO, HOW DO YOU GET STARTED INVESTING?

It shouldn’t take more than 15 minutes. Seriously. All you need is an Internet connection and your bank account’s routing number and account number. Here's what to do.

1. DECIDE WHY YOU'RE INVESTING AND FOR HOW LONG.

To keep this easy, let’s assume you’re investing for retirement and have at least 20 years before you expect to retire. Let’s also assume you don’t plan to retire before age 60. 

In this case, I recommend that you begin with an account called a Roth IRA. You can open a Roth IRA at virtually any bank or financial services company. 

A Roth IRA is a kind of retirement account that gets favorable tax treatment. After age 59-and-a-half, you can withdraw money (both principal and earnings) from a Roth IRA tax free. That’s a powerful benefit because it gives you tax-free income in retirement. Because the tax treatment of Roth IRAs is so favorable, there are limits:

In 2016, individuals can contribute a maximum of $5500 to an IRA. If you’re 50 or older, you can make an additional $1000 “catch-up” contribution.

In 2016, if you’re single and earn more than $132,000 or you’re married (filing jointly) and earn more than $194,000, you’re ineligible for a Roth IRA. Individuals with high incomes below these limits may be subject to reduced maximum contributions. You can read more about Roth IRA limitations here

2. DECIDE HOW YOU WANT TO INVEST.

You should think of a Roth IRA as an empty bucket that you will fill with investments. You could put almost any kind of investment into your Roth IRA bucket—cash in the form of certificates of deposit (CDs), stocks, mutual funds, government bonds, or even gold and silver.

Unless you’re already a knowledgeable investor, I recommend investing in index funds. Index funds track certain parts of a particular stock or bond market (or the entire market). Index funds are great because they:

Provide immediate diversification.

Cost less than actively managed mutual funds or trade commissions on individual securities.

Perform as well as (or better than) more expensive actively managed mutual funds

If you want to try another investing strategy besides index funds, be wary of two things: 

Do not invest for retirement in cash (savings accounts or CDs). Your earnings won’t beat inflation, so your real rate of return will be negative over the long run. 

Avoid financial advisors who aggressively sell specific mutual funds, annuities, or cash value life insurance policies. These investments are expensive and inappropriate for most investors.

3. DECIDE WHERE YOU WILL INVEST.

Deciding where to open a Roth IRA and invest your money is another intimidating decision. There are hundreds of options, but let’s narrow the field. 

Vanguard is the world’s largest mutual fund company and pioneered low-cost index investing. Investing directly with Vanguard may be the lowest-cost way to go, but Vanguard does have minimum investment requirements. Also, you will need to choose the funds in which you invest, which requires some additional knowledge. Want plug-and-play investing? Read on. 

New companies like Betterment, Wealthfront, and Acorns allow you to invest in low-cost, broadly-diversified portfolios. These firms, colloquially called “robo-advisors,” offer portfolios containing many of the same funds you’ll see at Vanguard. The robo-advisors add value by doing the work of choosing funds and maintaining the right balance of funds in your account.

When you open an account at one of these companies, you’ll answer a few simple questions and they will invest your money in the best portfolio for your goals. And that’s it; you’re done. You can make a lump-sum investment or sign up for recurring monthly deposits. Acorns even offers a feature that allows you to round-up purchases on your credit or debit card and invest the “spare change” every week. 

Betterment, Wealthfront, and Acorns work similarly, but have different pricing models. As of February 2016:

Wealthfront is free for accounts under $10,000 but requires a $500 minimum investment.

Betterment has no minimum to open an account, but you must set up an auto-deposit of at least $100 per month to avoid a $3 per month fee.

Acorns has no minimum investment but accounts under $5000 are charged a $1 per month fee; students can invest for free. Invest as little as $5 each month.

Otherwise, all accounts charge annual investment fees that are based on a percentage (between 0.15 and 0.25 percent) of your account balance. Betterment becomes slightly less expensive than the others if you have more than $100,000 invested. 

4. FUND YOUR ACCOUNT.

Once you choose an investment account in which to open your Roth IRA, the last step is to fund your account. Simply follow the instructions to link your bank account and decide how much to invest. 

The robo-advisors mentioned above make it easy to set up regular monthly deposits, so you can get started with as little as $50 or $100 a month. 

LET'S RECAP:

Even if you know nothing about investing, you can get started today in as little as 15 minutes:

1. Find out if you qualify for a Roth IRA. You qualify in 2016 if you’re single and earn less than $117,000 or if you’re married, filing your taxes jointly, and together earn less than $194,000.

2. Decide where to open an account. Vanguard gives you direct access to low-cost index funds but requires you to select your investments and manage your own portfolio. Robo-advisors—including Betterment, Wealthfront, and Acorns—offer plug-and-play portfolios based on your answers to a few simple questions.

3. Link your bank and fund your account. Enter your checking account’s routing and account numbers and transfer an initial investment. If possible, set up a monthly auto-deposit up to a maximum of $5500 a year. Want to invest more? Open a second account (that one won’t get the tax benefits like the Roth IRA, unfortunately) or inquire with your employer about employer-sponsored retirement accounts at work (see how to get started with a 401(k) here). 

When it comes to investing before retirement, the important thing is to get off the sidelines. Ignore doom-and-gloom news about short-term market routes, “hot stock tips” from your Uncle Ned, and dodgy investments peddled by commission-only financial advisors. Do these things, and you can sleep well knowing one day you will retire richer than most. 

For more down-to-earth financial insights, check out these stories from Money Under 30:

Why You Will Need $2 Million To Retire

How Much Can You Afford To Spend On A Car?

11 Ways I Paid Off $80,000 Of Debt — In JUST 3 Years

nextArticle.image_alt|e
iStock
arrow
environment
California Startup Pays Users to Consume Less Energy
iStock
iStock

You may know that turning off the lights when leaving a room or lowering the thermostat before bed are smart habits, but with no way to see their immediate impact, they can be hard to keep. OhmConnect is built around the premise that more people would follow through with these actions if they had a little motivation. As Fast Company reports, the San Francisco-based startup rewards California residents for their green choices with real cash.

The mission of the company is to prevent energy grids from using costly and dirty emergency power plants by encouraging customers to conserve power when demand outweighs supply. During “OhmHours,” users receive a text suggesting energy-saving practices. They can choose to opt out or agree to make an effort to lower their consumption. If their usage in the next hour is lower than the average for their home on that type of day (weekdays are compared to the weekday average; weekends to the weekend average) they receive points which can be redeemed for money. The more people participate on a regular basis, the more points they’re able to earn.

Participants in homes equipped with smart devices like a Nest thermostat or Belkin smart switches can program them to automatically consume less during those times. Nearly a fifth of the user base chooses some type of automatic response.

Someone living in a small apartment participating once a week has the potential to make $40 to $50 a year, while a family living in a larger home can earn up to $200. The California energy grid has also reaped the benefits: Since launching in 2014, OhmConnect has saved the state a total of 100 megawatts (the equivalent of not running two emergency power plants at high-demand times). California residents who get their energy through Pacific Gas and Electric, Southern California Edison, or San Diego Gas & Electric can sign up to participate online. If you don’t live in the state but are interested in the service, you may get a chance to try it out soon: OhmConnect plans to expand to Texas, Toronto, and potentially the East Coast.

[h/t Fast Company]

nextArticle.image_alt|e
iStock
arrow
job secrets
11 Secrets of Financial Planners
iStock
iStock

You share your darkest money secrets with your financial planner. You even tell him about the time you spent your last pennies at Starbucks, because without caffeine, how could you work? This is the person who is supposed to sort out your life so that you can buy everything your heart desires, after all—or so we want to believe. We found out whether financial planners judge your shoe-buying habit, whether they get mad if they have to repeat themselves time and time again (we hear what we want to hear), and why they don’t always follow their own advice.

1. SOMETIMES, THEY GET A LITTLE ANNOYED WITH YOU.

“I grimace when friends or clients get involved with multi-level marketing endeavors, thinking it’s a quick way to make money,” says Quentara Costa, a certified financial planner in Massachusetts. These MLMs, including LuLaRoe, Matilda Jane, and others, rarely last more than a year, but according to Costa, the outlay of funds and time you pour into developing and understanding the product could have been better spent pursuing other means of career development. “While well-intentioned, it’s my least favorite method of supplementing income because it can take years to develop business and trust within the community, as with any business venture,” he explains.

2. THEY DON’T ALWAYS APPROVE OF YOUR CAR-BUYING WAYS.

sports car
iStock

Meghan Chomut, a certified financial planner in Thunder Bay, Ontario, says she can’t stand it when her clients overspend on vehicles. She even has a golden rule about it: The total value of all your vehicles and motorized toys shouldn’t add up to more than half of your annual income.

3. BUT THEY UNDERSTAND THAT YOU’RE GOING TO FORGET ABOUT SAVING MONEY DURING YOUR VACATIONS.

This is the time when clients tend to go off the rails, says Bill Ryon, co-founder and managing partner of the Dover, Delaware-based Compass Investment Advisors. Whenever Ryon sees clients taking distributions that are larger than what’s called for within their financial savings plan, he knows that they’re going on an international trip. “It can be a little bit of a sensitive conversation, since it is their money and I want them to enjoy themselves," he says, "however not at the expense of derailing their plan or jeopardizing their lifestyle in the future."

4. THEY BLAME YOLO.

credit cards
iStock

“If you can’t afford it, you shouldn’t do it,” Chomut says. “But then #YOLO, and all of a sudden, you’ve booked a trip to Florida. Or #FOMO you are going out to eat at a fancy restaurant with friends and putting it on a credit card," she says. "The struggle is real.”

5. THEY TOTALLY EXPECT TO REPEAT THEIR ADVICE OVER AND OVER AGAIN.

Warren Ward, senior planner with WWA Planning and Investments in Indiana, says that many years ago, his doctor told him that about half the medical issues he dealt with in his practice were optional: people overate, refused to exercise, or smoked. But they still wanted their doctor to keep them healthy. “He responded by repeating his good advice, and making medical interventions when appropriate,” Ward says. “Just like that physician, we care about our clients, and will patiently repeat our advice at every visit, knowing from experience that people can change over time and become more financially healthy.”

6. EVERY FINANCIAL PLANNER HAS THEIR OWN FINANCIAL TRICKS TO PASS ON.

cash in an envelope
iStock

Ward is a huge fan of the “cash envelope system,” he says. Basically, you map out your spending for the week, and put that amount of cash into an envelope. “Mapping out your spending for the week allows you to know where your money goes instead of wondering where it went,” he says.

7. SOME WANT YOU TO FOCUS ON THE BIGGER PICTURE ...

“The secret is that all retirement planning is income planning and everything else is detail,” Ryon says. “I’ll have to repeat that several times, but that’s it. It helps them to focus on what’s really important and what they are planning for.” Essentially, he says, you’re saving and investing to sustain your lifestyle for at least 30 years after you retire. So if you focus on the fact that all of your retirement planning is income planning, then you’ll be able to think of your money as a machine that’ll pay the bills once you stop working.

8. ... OTHERS WANT YOU TO THINK ABOUT EVERY DOLLAR YOU SPEND.

Budget and cash on table
iStock

The key is to make a budget every single month, Chomut says. “Every dollar overspent is a dollar you have to either work harder for tomorrow, or a sacrifice you’ll have to make later.”

9. THEY DON’T ALWAYS FOLLOW THEIR OWN ADVICE ...

Ward says that the most difficult part of financial planning is convincing his clients to plan for death. That means setting aside money for the kids’ education and naming a close friend or relative as a potential guardian for those children ... just in case. “Just like my clients, I’m slow to face updating my estate planning documents,” Ward says. We don’t blame him!

10. ... BUT THEY STILL WISH YOU WOULD TRUST THEM ...

businesswoman looking anxiously at her phone
iStock

“In our modern age of 24/7 news coverage, I think people tend to put too much emphasis on interpreting the latest headline, and then trying to act tactically in response,” Ward says. “Whether this involves making an investment decision based on world affairs, or following the weather minute-by-minute prior to a vacation, we prefer that they think strategically, formulate a plan and stick to it—of course allowing for periodic review and adjustment.”

11. ... BECAUSE AT THE END OF THE DAY, THEY’RE THE EXPERTS.

“I struggle watching one of a couple—usually the husband—claiming expertise that’s actually incomplete,” Ward says. After all, he doesn’t brag about medicine when he goes to the doctor, nor does he claim knowledge of the law if he visits a lawyer. “I try not to be judgmental, but this is an area where I struggle,” he says.

SECTIONS

arrow
LIVE SMARTER
More from mental floss studios