Money Monday: Simple Ways to Start Investing
“Just pick up a dish.”
I’ve used this seemingly frivolous bit of housekeeping advice a few times over the past several years, as a metaphor in both my writing and in my life. One of my favorite high school teachers came across it in a women’s magazine she had read in the 1950s, about how to clean up after a dinner party when your house is full of dirty dishes and glassware. The idea was that if you pick up one dish, and then another and another, soon you’ll find that you’re making real, measurable progress toward your goal.
My teacher was not an avid housekeeper. But for her, “Just pick up a dish” became a metaphor for tackling any task that seemed overwhelming, whether writing her master’s thesis or helping students learn trigonometry.
Taking that first step to get started in investing is the equivalent of picking up that first dish. It’s hard to know where to start (IRA or 401k? Small cap stocks or large cap stocks?) and even easier to become paralyzed by indecision. Sitting still might seem like the safest, and certainly the easiest, choice.
If you’re just starting out in your career and investing life, here are some simple starting points to help you get going.
1. Contribute to Your Company Retirement Plan
If your debt is under control and you’ve started to build an emergency fund (see the previous two weeks’ postings on why this is so important), the first thing on your investing to-do list should be contributing to your company retirement plan (if you have one available to you).
Depending on where you work, you may be able to contribute to a 401(k), 457, or 403(b). But don’t be put off by the gobbledygook of letters and numbers. The main thing to know about these plans is that they help you save for retirement and you won’t have to pay any taxes on any investment gains from year to year.
I know, it’s hard to get excited about retirement or tax savings, particularly when you’re also trying to save for here-and-now goals like a down payment on a condo. But trust me -- getting started early can greatly magnify the amount of money you’ll have when you do retire.
2. Don’t Miss out on the Matching Contribution
Plan to contribute at least enough to your company retirement plan to earn any matching contributions your employer is making for you, and if you can swing it, contribute even more than that. You can use Morningstar.com to find information about all of the individual investment choices.
If you don’t have a lot of time to devote to getting your company retirement plan up and running, steering your contributions to a target-date fund is a good default option. Target-date funds are all-in-one options that start out stock-heavy and get more conservative as the years go by. Figure out what year it will be when you’re 65 or 70, then opt for the target-date fund whose date lands closest to that year.
3. Invest in a Roth IRA
If you’re already contributing enough to your company retirement plan to earn any matching contributions, or if you don’t have such a plan available to you, invest in a Roth IRA. The Roth is a little different, and arguably even better, than a 401(k). Not only can you put anything inside it, but you’ll be able to take tax-free withdrawals in retirement. And if you’re a commitment-phobe, the Roth’s flexibility is another attraction: You can withdraw your contributions at any time and for any reason without triggering taxes or penalties.
As with the 401(k), don’t let analysis paralysis set in, and steer clear of trendy, “ripped from the headlines” investment types. Instead, plan to direct your IRA contributions to a sturdy, low-cost fund from a reliable fund family like T. Rowe Price or Vanguard. Both firms run solid target-date funds, but funds like T. Rowe Price Global and Vanguard Total Stock Market Index are also fine choices for people just starting out.
And another thing: You’re eligible to contribute $5,000 per year to a Roth, but you don’t have to have that amount on hand to begin investing in one. Some firms (T. Rowe Price is one) allow you to make a small initial purchase of $25 or $50 provided you agree to make regular monthly contributions to your account.
4. Put your near-term savings on autopilot
It’s important to get started on retirement savings, and the sooner the better. But if you’re investing for a goal that’s close at hand, such as a down payment on a car or condo, you’re apt to be better off saving outside the confines of a retirement-specific wrapper like a 401(k) or Roth IRA.
To jump-start your savings program for near-term goals, have your monthly savings amount deducted directly from your checking amount on the day you get paid. That way you’ll never set eyes (or your mitts) on the money.
Your bank, mutual fund company, or brokerage firm should be able to help you set up this type of autopilot account. And if you’re saving for a goal you hope to reach within the next year or two, be sure to keep the money stashed in safe investments like a money market account, checking or savings account, or money market mutual fund—no stocks for you. If you could need your money at any time, you can’t risk the fluctuations that come with stocks and other higher-risk investments.
Your Money Monday Task for This Week: Pick up that dish! If you haven’t yet enrolled in your company retirement plan, sign up to contribute at least as much as you need to earn matching contributions. If you can’t contribute to a retirement plan, download and fill out a Roth IRA application from T. Rowe Price’s or Vanguard’s Web sites.
Guest post by Christine Benz, director of personal finance at Morningstar and author of 30-Minute Money Solutions: A Step-By-Step Guide to Managing Your Finances (Wiley, 2010).
Enter to win a signed copy of 30-Minute Money Solutions by Christine Benz today! It’s easy – just post a comment following today’s Money Monday post and you’re entered to win!
401K, 403b, Christine Benz, Roth IRA, investing, money, money questions in Money Share Article 
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