This post is for those who aren’t investing regularly for their retirement yet. Not just saving, investing. In order to retire right, you’re gonna have to beat inflation. That means no savings accounts! I wrote previously about IRA Options For Those Starting Out, with various options for those who with limited funds.
How this? In addition to TIAA-CREF which was already mentioned, T. Rowe Price will let you open an account and invest in their funds for only $50 a month if you sign up for their Automatic Asset Builder program. There may be a $10 annual low balance fee, but don’t let ten bucks stand in your way. Start! Here’s a little secret: $50 a month is nothing.
Especially when it is on auto-transfer. I automatically move $50 a month from my chekcing account to a Fidelity 529 account to waive the fees for my MBNA 529 Card, and I don’t even notice it anymore. I’m always amazed when I check my balance and see how fast it has grown.
Don’t think you have $50 a month? $50 is a dinner for two and movie tickets. $50 a month is $1.67 a day. Heck, I’m sure you could easily clear that much just by participating in the occasional deal.
$50 a month, invested at 8% annually for 30 years, is $71,000.
As for investment suggestions, if you have a long-term horizon one possible option is the Total Equity Market Index Fund (POMIX), which tracks the entire U.S. Market, from small-cap to large-cap. The expense ratio is a reasonable 0.40%.
Another option is their auto-pilot funds, such at the Retirement 2040 Fund (TRRDX) which automatic adjust as you reach your target retirement year, and has an expense ratio of 0.84%. A bit high for my tastes, but still below average. Remember, for $600 a even a 1% expense ratio is just six bucks a year. They also have some actively-managed funds with good track records, if that’s your bag.
In summary:
1) You can start investing in quality index funds with just $50 a month.
2) You can manage $50 a month.
3) After you start, it becomes more and more painless.
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This is an excellent post Jonathan. Thanks for the reminder. No matter how small, the important thing is getting started.
I am with you on this one. This year is the first time I started a Simple IRA (something like a 401k) with Schwab through my employer. They are taking out $80 a month from my paychecks and now after 6 months I don’t even notice it anymore. I don’t miss the money at all. I would spend it on stuff anyways. Right now my money is sitting in a savings, but once I have $1000 together in a few months I can invest in funds that give me higher returns.
Hi,
Regariding Trowe price. I don’t think all Mutual Funds have the $10.00 Annual low balance fee (2.50 per quarter).
Equity Index 500 does have that fee. But there are other (very good) funds that do not (for example blue chip growth). Always read prospectus.
And I agree $50.00 a month over time adds up.
This is a great post. I have used T.Rowe for a Roth IRA. We could only start at $50/mth, but after a year bumped that up to $75. After a few years, with raises and my wife going back to fulltime work, we will probably be at the full Roth limit. For now at least we are throwing in some $$, which is growing nicely.
Another option is T.Rowe Price. $50 is min for Automatic Investments. I find their choice of funds to be excellent, and their site very easy to use.
Thanks lokki, I only did a brief glance at their funds. Changed the post to “may have a $10 fee”. Looks like the index funds have that.
But good point too about always reading the prospectus. I used to find them boring, but now I like reading them!
Nick – I can always tell when people are skimming my posts 😉
What do I look for in a prospectus? I bought my first Roth IRA on April 14th this year. I put 8k (4k each for me and wifey) into ING. I chose them because they were the only one that could do it for 2005… everybody else couldn’t meet the IRS deadline. Anyway, I know now that wasn’t my best choice.
So, I have another 8k to dump into a ROTH IRA for 2006. I have time to do some evaluating and such. Thus the question, what am I looking for in a prospectus, and any suggestions for somebody who can meet most minimums?
Great post. T Row Price is a great place to start the Cap. Appreciation Fund is another great fund. The expense ratios are higher than Vanguard or Fidelity but not outrageous and you can at least get your foot in the proverbial investment door with T Row Price.
If you can’t even spare $50 try Homestead Value Fund you can start with a zero balance and automatically invest $5 a month if that is all you wanted to do.
Question for all you personal finance gurus. 🙂
I have about $3,000 right now that I want to invest in a Roth IRA – that’s the minimum for the Vanguard Target Retirement funds, so I’m thinking of putting the money in there. I’d like to do some sort of dollar-cost averaging, though (probably monthly?). My question is, is there a way that I can do dollar cost averaging with Vanguard, or no… because they require a $3,000 minimum for retirement accounts. So if I don’t want to put a lump sum in, should I go with another company like Fidelity?
Thanks everyone for your help in advance. Special thanks to Jonathan for his great post.
Sorry, I am a newbie here. Would you mind telling me how you come up with the $71000 in “$50 a month, invested at 8% annually for 30 years, is $71,000.”? Thanks.
Jonathan,
I came across a brand new brokerage service that has some of the same features, but the absolute lowest commissions out there. They have a fractional share purchase program and an automatic investment system.
I wrote a little about it on my blog, but the site’s name is SogoInvest.com
I haven’t found a broker with lower commissions, no maintenance fee, no minimum…
Check it out, it could be a good avenue for you (and your readers) to do some trading with dirt cheap commissions.
-Grant
great post john,,i was so excited found your blog and it so much mean to me as newbie.
but i m indonesian ,could anyone here please let me know what should i do if i want to invest in $50 a month as it might could be lilbit hard to find the right investment tool in my area?is there any online investment program anyone here suggest for me?
trimakasih-thanks