Many American consumers (wrongly) believe that, since they don’t earn “enough” money, they can’t invest and take the risk of losing what little they do make. The fact is however that, better than the lottery, setting at least $50 a month aside for investing is at least a good start. Below are a number of tips that can help you get started on a budget. Enjoy.
If you’re nearing retirement, you can relatively easily put together a diversified portfolio by using target date retirement fund. Now, to be sure, target date retirement funds do have their critics, who say that they are “cookie-cutter” solutions that either are too risky or, conversely, not risky enough. The fact is however that for someone who isn’t making a lot of money and would struggle to put together a diversified portfolio on their own, target date retirement funds are great choice.
One of the best is from Vanguard Group, for a number of reasons. First, they have a very low average annual expense at just 0.17%. That means is that for every hundred dollars you invest, you only pay $.17 for annual expenses on it. They also have a very low $1000 minimum and a mix of both market tracking stocks and bond index funds. Even better, as the fund approaches its target date, the mix becomes more conservative.
If you’re looking for conventional stock index mutual funds or bond index funds with low minimums, Charles Schwab has five of the former and three of the latter with $100 minimums each. Another excellent reason to go with Schwab’s index funds are the fact that they have very low annual expenses as well, including .19% for their international index fund, .09% for the US total stock market fund and .29% of their total bond market fund, all three of which are excellent.
Not interested in buying index mutual funds? Then open a brokerage account instead and purchase exchange traded index funds (ETF) instead. The advantage of ETF’s is that they’re listed on the stock market and, whenever the market is open, they can be traded. Mutual funds can only be bought and sold once a day when the market closes.
Even better, there are a number of brokerage firms that will let you trade ETF’s without a commission but, before you buy those, make sure that their annual expenses are low (0.2% or better). The reason that ETF’s have lower fees as opposed to mutual funds is because the cost of handling shareholder accounts is less (being done by brokerage firms). A good mix of ETF’s to start would be one broadly diversified US stock fund, one US bond fund and a foreign stock fund.
If you can put together $1000, and actively managed fund like T Rowe Price Group’s target date retirement fund is an excellent idea. One caveat is that you have to purchase the funds in an IRA. Scalped Investments, Artisan Funds and Buffalo Funds will, if you agree to automatically invest $50 or $100 every month, waive their regular minimums.
Whatever you decide to do, here’s the key factor to keep in mind; what really matters in the long run as far as building wealth and a decent retirement nest egg is concerned is not only the amount of dollars you put away but putting away something every month.