How to start investing for retirement
Monday, June 23rd, 2008From: http://www.mymoneyblog.com/
I’m always flattered when anyone (online or offline) asks me for investing advice, but at the same time I’m very cautious about giving it out. And it’s not just the usual *I’m not a financial professional* legal concerns, but the fact that it’s hard to give useful advice in a few paragraphs or a 5 minute chat. Over time, I’ve been refining my “amateur, informal financial advice over coffee” speech. My goal is to give specific ideas but to keep it simple. Let me know what you think.
1. Put your money in a Vanguard Target Retirement Fund. These mutual funds are an all-in-one basket of different low-cost index funds. You get some US stocks, some international stocks, and some bonds. The mix is automatically adjusted for you. No, they might not be perfect, but they are pretty darn good and very simple to hold. I have specifically have told my own mother to open an account at Vanguard. I withhold any theory talk about passive investing because this is when most people’s eyes seem to glaze over.
Just buy the fund with the date closest to when you want to start making withdrawals. All lifecycle or dated funds are not made the same. The ones in my 401k stink, and I don’t even like the Fidelity Freedom 20XX funds.
The Vanguard funds do have a $3,000 minimum initial investment. Until you have $3,000, just stick your money in an savings account paying decent interest and with an automatic deposit system. I know it sounds nice to “start investing with $100″ (and here are some ways to do that), but honestly, if you don’t have $3,000, your focus should be more on saving money by spending less/earning rather than investing at this point. There is no need to rush.
2. Read a good investing book
Websites and blogs are great, but it is still very hard to replace a good book. They tend to be professionally edited, better organized, cover all the bases, and are easy to refer back to. I think the following books are great and are definitely worth the $10-$20 cost:
- Four Pillars of Investing - Most detail, for those with longer attention spans
- Bogleheads’ Guide to Investing - Somewhere in the middle
- Coffeehouse Investor - Least detail, short and easier to read
If you’re not convinced (perfectly understandable), first borrow it from the local library and then buy a copy if you like it. Read as much as you can!
3. Hey, no skipping ahead. Please do #2.
My friends ask me for advice. I say to read a book. Months later, most of them (not all) haven’t read any books but still want advice. Yes, I know, this involves effort. (Gasp!) Please, spend a weekend doing something that will dramatically increase your net worth in the future. If you don’t, then at least if you did #1, you’ll be ahead of most investors who pay too much money chasing hot stock tips or pay other people to chase hot stock tips for them.
4. Pay someone to do it for you
If it’s been years and you still haven’t read a darn book and don’t plan to, go to NAPFA.org and find yourself a fee-only financial advisor that you click with. Pay that person to keep you on track. If they are fee-only they are less apt to be biased on what investments they recommend. But remember, the person who will care most about your money is still you.
