You can build a nest egg for your future no matter how much or how little you earn. Find the best places to invest your money like a pro, even
if you just have a small amount to put aside.
Money Girl
207 MG Invest Like a Pro on Any Income
[MUSIC] Hi, everyone, and thanks for joining me on the Money Girl Podcast. [MUSIC] I'm Laura Adams, the author of the brand new book, Money Girl Smart Moves to Grow Rich. Before we get started, I want to thank Brenda M for bringing an error to my attention in podcast number 205 about IRA rules. It's been corrected now, but I said you can withdraw contributions from a Roth IRA penalty free as long as you've had the account for five years. That's not correct because the five-year time frame only applies to withdrawing earnings. Contributions can be withdrawn at any time without penalty. I sent Brenda a signed copy of my book for catching that so quickly. Now, let's get on to the important topic of investing. Whether you earn a little money or a lot, you should save and invest some of it for the future. Living without a financial safety net is a sure-fire way to get into trouble and can be a huge source of stress in your life. The sooner you get into the habit of putting money aside, the better off you'll be. In this podcast, I'll cover the smart moves you need to make to invest like a pro no matter how much you earn. One of the best financial goals you can set for yourself is to invest at least 10 to 15% of your income. If that's too much for you right now, you can still invest like a pro even if you have just $50 left over each month. And if you don't have $50 left over, be sure to listen to podcast number 204 Smart Moves for Guaranteed Financial Success, where I cover how to create a spending plan in six easy steps. Here's an example of what investing just $50 a month can do for your future. Let's say you're 30 years old and have 40 years to go before retiring at age 70. When you invest money over a 40-year period, some years could give you fabulous returns of 12% or more. But other years might return a measly 4% or less. If you figure on making an average of 8% over 40 years, you'd accumulate close to $175,000 to draw from when you retire. Don't make the mistake of thinking that no one wants your money if you don't have much to invest. Even on a tight budget, you still have options to make your money grow. Once you know how much you want to invest, you need to decide where to invest it. Here are four smart places to invest your money. Investment option number one, a workplace retirement plan. If you have a retirement plan at work, like a 401k or a 403b, be sure to take advantage of it. I always recommend making a workplace plan your go-to investment choice, because many employers offer matching funds, which is free money. Making contributions to a retirement account also saves you money on taxes, and it happens automatically before you ever see your paycheck. You can invest a percentage of your income or a flat amount per pay period up to the annual limit set by the IRS, which is $16,500 for 2011. If you're age 50 or older, you can contribute up to $22,000 for 2011, but if you only have $50 a month to invest in your company's retirement plan, don't be ashamed to participate. As I mentioned, even investing a small amount will do wonders for your future. If you're paid twice a month, simply elect to invest $25 per paycheck. You can increase or decrease your contribution amount at any time. If you have questions about how your retirement plan works or what investments to choose, you can get free advice from your benefits administrator or from the broker who manages the plan for your employer. Investment option number two, a retirement account for the self-employed. If you work for yourself or own a business, there are great retirement options designed just for you, like a SEP or a simple plan. I won't cover those in detail here, but instead I'll refer you to chapter seven of my book, Money Girl Smart Moves to Grow Ridge, where I cover everything you need to know to choose the best type of account. You can use an online brokerage or a fund family like TD Ameritrade or T. Rowe Price to set up your own retirement plan. Having a small business retirement account is a nice way to offer benefits to your employees and to get tax breaks for your business. Investment option number three, an individual retirement arrangement or IRA. If you don't have a job that offers a retirement plan or if you do but don't get employer matching, consider investing in an IRA. You'll get great tax benefits and the freedom to choose from a wide range of investments. You can invest up to $5,000 for 2011 or up to $6,000 if you're age 50 or older. Here are just a few of the many online brokerages and fund families where you can open up an IRA. Fidelity at Fidelity.com has no annual fee but requires a minimum of $2,500 to open an IRA unless you set up automatic contributions of at least $200 per month. Schwab at Schwab.com has no annual fee but requires a minimum of $1,000 to open up an IRA unless you set up automatic contributions of at least $100 per month and sharebuilder@sharebuilder.com has no annual fee and no account minimum to open up an IRA. If you use their automatic investing plan you can buy partial shares of stock or funds. That means if you want to buy an expensive stock like Google for instance that costs over $600 per share right now but you only have $50 to invest each month. You can buy fractions of a share. That's a great feature since most brokerages require you to buy full shares of stock. Investment option number four. A taxable brokerage account. If you've maxed out contributions to a workplace plan or an IRA and still have money left to invest you can put as much as you want in a regular brokerage account. These non-retirement accounts don't offer any tax advantages but do allow you to make withdrawals at any time without having to pay an early withdrawal penalty. Examples of online brokerages where you can open up and invest in a taxable account are E-Trade, Scott Trade, and Zeko. If you haven't started an investing program yet make a commitment to begin putting aside a small amount of money on a consistent basis. Having a fancy retirement plan at work is great but remember that you have other options to build wealth like an IRA and a regular brokerage account. If you already invest consider increasing your contributions this year so you can build wealth at an even faster pace and make sure that you'll retire on time. Remember to download two free book chapters at smartmoves2growrich.com. Publishers Weekly praises the book as one that will enable you to create a richer life both financially and emotionally. Also check out another new book from Quick and Dirty Tips called The Winning Investors Guide to Making Money in Any Market. Whether you're just getting started investing or want to manage your money more closely author Andrew Horowitz will tell you how. For more money tips and advice sign up for the free money girl newsletter and connect with me on Facebook and Twitter. Email your money questions to me at money@quickanddirtytips.com. If you forget any of the resources or links that I've mentioned simply go to the money girl section at quickanddirtytips.com. I'm glad you're listening. Cha-ching! That's all for now, courtesy of Money Girl, your guide to a richer life. [Music] [BLANK_AUDIO]