One year ago I was sitting in college inside a Student-Managed Investment class, single picking stocks with students who knew a heck of a lot more about business and the general stock market than I do.
I was intimidated, and thought at the time I would never amount to anything as great as being an investor.
After discussing with friends and family the moral implications and financial benefits of the stock market, reading the Mr. Money Mustache Blog, taking the Dave Ramsey Financial Peace University course, and perusing Reddit, I decided that I, too, could join the ranks. I could invest.
It started last month. In March The Mrs. and I changed opened up a Roth IRA with Vanguard for a Target Retirement Fund with only $1360! You do not need a lot of money to invest! With Vanguard, the best investment option of today’s day and age, you only need $1,000 to invest. And it will grow. And grow. And be there forever, relatively tax-free.
WHY DIDN’T ANYONE TELL ME ABOUT THIS EARLIER IN LIFE? If I had known about this 10 years ago, when I was only 13 years old, I would have begun doing long-term saving and investing. I think of the missed opportunity for growth, and I am excited to invest now. Even with the market at an all time high, we will continue adding money to this account, essentially, forever.
“WHY INVEST” YOU SAY? Because it keeps the purchasing power of your cash from depreciating with inflation, because it starts our future retirement, and because it is fun and rewarding to watch your savings grow!
If you need to see the visual, check out Dave Ramsey’s Investment Calculator here. It is fun to play around with, to predict how much you think your $ can grow.
<— In this example on the LEFT you can see that less than half of that $58,287.92 is contributions… the rest is interest that has compounded. WOW. And this is only $100 a month, for 20 years = 58,287.92, a small amount even for those of us working measly close-to-minimum-wage jobs. That’s less than most people spend on gasoline in the same amount of time.
Starting an IRA with Vanguard is simple, fast, and easy. You go on their site, you sign up, and you put whatever money you can into it. If you start with more than $3,000, you have a broader choice of choosing things like the Vanguard Total Stock Market Index Fund (VTSAX) or the Vanguard 500 Index Fund (VFINX), which will likely bring greater returns than a Target Retirement Fund.
We don’t have that much money to put into it right now because we are currently fighting our DEBT EMERGENCY SNOWBALL & AVALANCHE OF FACE-PUNCHING DEATH! We know that throwing all of our excess cash at our student loans makes more financial sense than putting it into the stock market. We want to punch the stupid loans in the face. In fact, the Mrs. and I make smart goals every month, and every month “Punching __x___ loan in the face” is always one of the smart goals. Make goals. Post them in an obvious place where you will see the goals each and every day.
Investing takes time, though. This IRA, and our future investments will help fund our retirement sometime in the next 10-15 years. As of right now we are only earning about $22 a month from our investments. This little cash employees need to someday be paying us around $2,000 a month for us to be Financially Independent. This is outlined by Your Money or Your Life (book review coming soon), Mr. Money Mustache, Brave New Life, and Early Retirement Extreme.
This blog is not designed to be just another early retirement blog. To be a Better World Biker is about more than that. It is about seeking wisdom, and learning about some of the most basic things in life. Money is a major part of life, and is also something I have been passionately learning about lately. I just finished reading through every single blog post ever from Mr. Money Mustache, and so I have been learning a lot about personal finance. It was also, of course, an inspiration to start this blog. Perhaps a post as an ode to MMM is in order. But this blog is not just about personal finance, it is about learning of all sorts. This just happens to be what I am learning about right now.
Invest soon, and invest with Vanguard. It is simple, cheap, and easy. The expense ratio is low, and since we only have the choice of picking a Target Retirement Fund, we picked the Vanguard Target Retirement 2035 Fund (VTTHX)
Some quick facts about VTTHX, which you can easily find on the Vanguard website here.
- It is a mutual fund of mutual funds. It is 84% Stocks and 15% bonds. Since bonds are not worth much now, I would have preferred something with less bonds, but this will work better and make for a more diversified portfolio.
- It will predictably get 7-12% returns. Even if it crashes, as I predict the market to do sometime in the next 20 months, it will rebound eventually and continue to give back a fantastic Return on Investments. At 7%, every $100 I put in will grow $7 annually, which will compound, compound, and compound into something truly awesome. After all, Albert Einstein supposedly said that Compound Interest is the 8th Wonder of the World.
- Because it is with Vanguard, it has incredibly low fees of 0.18%. Once we get more than $10,000 in the account, these will get converted to Admiral Shares of only 0.05%. Awesome!
- Because it is a Target Retirement Fund, you get to completely ignore the noise of the market, the media, and your friends who have absolutely no idea how the stock market works.
“But wait! Isn’t that risky? What if you lose all of your money in the stock market!” Thankfully, it is the Better World Biker way to live not in fear, but in hope. And confidence. The cash will go down, but it will also always come back up. All you have to do is follow some simple investing advice from Warren Buffet to only invest in what you understand. In fact, right now our account is below what it started at for the first time. This does not get my heart racing because I am confident that it will rise again, and continue growing over the next decade.
“How can you invest in this economy?” The stock market is at an all time high right now. It has recovered nicely from the 2008-2009 recession, and those who were smart enough to not only keep their stocks but to buy more during the recession, have seen their investments SOAR. Plus, with dividends, you get paid just for owning shares of different companies, and index funds like VTSAX and VFINX. The economy is doing well, the only challenge is how to keep up with it yourself. The sooner you invest, the sooner it can compound and pay you dividends.
“Wouldn’t it be better to just keep my money in a high-interest bank account?” No. We keep our Emergency Fund with Ally Bank, which is currently below 1%. While this is better than a checking account which gives you nothing, and may even charge you fees to exist, you must not follow the Sunk Cost Fallacy. You need something that is going to give you more than 5-7% of growth. A high interest bank account simply will not do that, even in a long-term CD.
“I’m not smart enough to invest in the stock market.” Actually, Vanguard makes it quite simple. All you need to do is pick a target retirement fund, and they will do the rest. If you want to do more hand-picking of stocks and things, you always can, but Vanguard makes it nice and easy for those who might otherwise be intimidated by investing.
Remember to stay optimistic and Ignore the Noise of these Sheep Bleating! There are many more naysayers than go-getters in the world, but it is our job to focus on the positive things, not the people filled with what MMM calls “Complainypants.”
In good form, the Better World Biker Retirement fund is automatically setup to make $100 payments out of our checking account into our Roth IRA. Once we smash our debt through the floor we should be keeping more like $1,000 a month for this fund. That will be the day.
So get out there. Invest. E-mail me at firstname.lastname@example.org or comment with any questions about the process. Trust me, it is as easy as it sounds. You too, will get to see your money grow.
Keep on Readin’ On.
PS: I am not in any way endorsed or encouraged by Vanguard. I simply, like many others, think this is the best place to put your long-term investments within the market.