Investing Rule #1: Start Today
The first thing you need to know about investing is that you should start today.
It doesn’t matter how much money you have. Credit card debt or loans or no job. Put $100 in an investment account today. Add a little each month for the next forty years. If you aren’t bringing in income, find a side job. If you have extra stuff to sell, sell it and invest that money.
Every year you put off investing makes your ultimate retirement goals more difficult to achieve.
Maybe retirement isn’t your ultimate goal and you plan on working until you’re 80. Great!
With an investment account, you can take nice vacations, buy a nice home, and maybe even get that fancy car you’ve always wanted.
I personally would love a Porsche, but I’ve got a ways to go for that.
Compound interest is going to be your best friend.
Given enough time, even modest stock market gains can generate real wealth.
Here’s an awesome example:
- If you make a one-time contribution of $5000 to a retirement account and receive an 8% annual return, you’ll earn $400 during the first year, giving you a total of $5400.
- During the second year, you’ll receive 8% not only on the initial $5000, but also on the $400 in investment returns from the first year, for total earnings of $432.
- In the third year, you’ll earn returns of $466.56. And so on.
After thirty years of receiving an 8% annual return, your initial $5000 will be $50,000.00.
Compounding is powerful, but it needs time to work its magic. The longer you wait to begin investing, the less time your money has to grow.
Compound interest gets even better when you add money each year.
Maybe you get a bonus at the end of the year. Maybe you have little left each month. Take that money and toss it in an investment account.
It’s great that a single $5000 investment can grow to nearly $160,000 in 45 years, but it’s even more exciting to see what happens when you make saving a habit.
If you were to invest $5000 annually for 45 years, and if you left the money to earn an 8% annual return, your savings would total over $1.93 million.
Check out the graph below and look at where the majority of your growth comes from . . . the last few years.
This is the power of compounding.
It’s human nature to procrastinate.
A lot of people put off investing for retirement (and other goals) because they get distracted by the demands of daily life.
(Studies show that only about half of Americans have money in the stock market.)
Don’t be one of that half! Chronicles of Rationality readers are above the average.
Try out a simple investment account like:
Betterment
Betterment is a robo-investing platform that automatically helps you create an investment portfolio that reflects your goals and risk profile. One of the best things about Betterment for investors who are just starting out is that you only need $1 to get started.
Unlike other retirement platforms, you don’t have to put a large sum of money on the table to start out. Instead, you can build your portfolio over time.
This platform will automatically rebalance your portfolio as needed. And, it also has tax-loss harvesting capabilities to help you maintain lower capital gains for the purpose of tax reporting.
The fee is 0.25 percent of the value of your portfolio. This is a pretty reasonable rate considering that the average investment adviser charges around 1 percent.
What’s more, you can invest for an entire year without paying any fees if you transfer over from an existing investment account.
Acorns
Acorns is among the best investment apps, and it’s also geared toward first-time investors. This app allows you to link credit or debit cards and set rules for your spending that will automatically help you save and invest.
Let’s say you buy a $4 coffee. You can set up Acorns to automatically transfer $1 from your spending account into your investment portfolio.
Like Betterment, Acorns enables you to get started with a very small upfront investment. And, Acorns only costs $1 per month to use.
Acorns is especially useful for students or people who are still settling into a career. You can save money every time you make a purchase, without even really noticing it.
Unfortunately, this model of micro-investing isn’t right for everybody. If you really want to build up considerable savings and maximize your investments, you might be better off with a more intentional approach and larger initial investments.
Robin Hood
Full Review
Robinhood is a free-trading app that’s ideal for investors who seek the ability to buy a wide selection of stocks, options and ETFs without paying commissions or fees.
But of course, there’s a tradeoff to anything that’s free. Robinhood lacks a full-service online trading platform — though it upped its game for 2018, with the addition of free options trading — and some investors may find the range of available assets to be lacking (no mutual funds, for example).
»Want help managing your investments? Check out our picks for top robo-advisors.
Robinhood is best for:
- Frequent stock, options or ETF traders
- Mobile users
- Individual taxable accounts
FIDELITY ZERO
Fidelity Zero is a new no-fee index fund from Fidelity that all of our readers should keep an eye on.
Acorns, Betterment, Robin Hood, or Fidelity Zero.
Our toolbox has reviews of each of those products and they are all either low fee or no fee.
I will touch on fees later on, but for now you should consider them the polar opposite of compound interest.
Start investing today. Your future self will thank me from your palace.
Stay Rational
-B&T