Investing guide for beginners!!

May 14, 2007 7:08 AM

Iam 20 years old and have a internship job, the only thing I have to pay for are gas,food, general maintenance and miscellaneous stuff. From all this money, Iam trying to save towards early retirement and was thinking of investing into Vanguard 2050 retirement fund. anyone have experience with them or have better ideas for me to invest in? I can start a accnt balance of $3k and add about $1k per year. Iam new into this field and almost have no experience.. any links that have helped you through your finance times would be helpful Thanks
posted by radsqd to Work & Money (20 answers total)

Morningstar is a great place to get information & track your portfolio. If you create a login (not the paid subscription but the free profile) you can also do the online workshops and learn a lot about investing in stocks, funds, and bonds.

Lipper is also a great place to go for unbiased opinion & research on funds.

Once you have started to invest (or even if you haven't started at all -- you can create what's called a watch list) most of the big portals (Google, Yahoo, MSN) all have money and finance sections where you can keep track of funds, stocks, and ETFs pretty easily. I have only used Yahoo! Finance and Google Finance. (MSN's product is MoneyCentral.) Google Finance is a bit "friendlier" than Yahoo! Finance but it has a long way to go in terms of the range of features it offers (for example, on Google Finance it won't show me when a dividend was paid on a fund, but I can get it very easily with Yahoo). Also for whatever reason, Google finance updates its fund prices really late in the day, so I end up turning to Yahoo if I want to know how my funds did before 8PM EST (grumble).

You're doing a really smart thing to be investing as soon as you can.
posted by contessa at 7:30 AM on May 14, 2007

Dude, at this point in your life, you would not be doing yourself any favors locking your money away. Take that 3,000 and put it in a short-term CD for now. You'll get it back with a little extra in six months or a year, plus, if you need the money, you probably don't have to pay an insane penalty to get it out.
posted by parmanparman at 7:34 AM on May 14, 2007

The method that these 'dated' funds use is to vary the degree of aggressiveness as you approach retirement. More aggressive now, less so later. This is a good option if you are not one to play with your retirement investments.
posted by Gungho at 7:35 AM on May 14, 2007

To answer your question, Vanguard is great and just going by their reputation, I'm sure their target-date funds are a good choice.

I disagree completely with parmanparman. If you can manage to save even a little for retirement now, and not touch it, you will be sitting pretty in 2050.

I would definitely be looking at a Roth rather than a traditional IRA, though. Paying the taxes now makes sense because you are earning relatively little money compared to what you'll be making later in your career (and probably in your retirement, considering you're starting so early).
posted by kindall at 7:45 AM on May 14, 2007

parmanparman is completely wrong- now is the perfect time to start investing for retirement. You are doing yourself a big favor by starting now.

As for the 2050 fund, I'm looking at it and it is already invested 10% is bonds, and it's only going to get more conservative over time. I personally enjoy handling my own asset allocation in my retirement portfolio, particularly because I'm choosing to be a bit more aggressive (i.e. less bonds while I'm young) then the Target Retirement funds. If I were you, I would look at what funds the Target Retirement funds is holding, and invest in those minus the bond funds- it might take a few years to get enough money to get all the funds to mimic the 2050 breakdown, but you have time on your side. However, if the thought of doing it yourself scares you and you're OK with a more conservative investment breakdown, the Vanguard 2050 fund is a great choice.

I've been with Vanguard for about 2 years now, btw, and I'm really happy with them- easy to use web interface, great customer service, low fees.
posted by ThePinkSuperhero at 7:50 AM on May 14, 2007 [2 favorites]

If you are 20 today, that $3000 becomes almost $200K when you are 62 years old if you are getting about 10% annual return, which is reasonable with the Vanguard 2050 retirement package. Of course, none of knows what $200K will buy in 40 years...

I've got all my retirement funds in the Vanguard targeted retirement funds. I'm a big fan of the invest and forget about it method. I just wish I had started when I was 20.
posted by COD at 7:56 AM on May 14, 2007

Hi. I wrote a post for psychiatrists on how to make money, but some of it is applicable to you. Highlights include:

1. Pay off credit card debt. 18% beats anything.

2. Get a Roth IRA. Among other reasons, once you make more than about $100k, you can't contribute. Trust me: after #1, this is the most important thing you can do. In certain cases, it may even make sense to borrow at a low interest rate to max the contributions in a given year and pay the people back with earned income (not Roth) later.

2b. All trading should be done within the shelter of an IRA, especially while you are young.

3. Stocks I would buy today if I were 20 and going into a coma: COP or HAL, SHLD, RIMM or AAPL; GOOG; PUDC. I own all but RIMM and AAPL as of today.

4. Mutual funds: depending on your personality, intelligence, and future earning potential, you could get either a simple index fund (especially the Midcap Index Fund); Vanguard Global Equity, International Value or Capital Opportunity. Or a combination. Or you could look into ETFs that mirror these (for example, FXI is like a China fund (though I think it is too high, I think China= 1999). The 2050 attempts to capture this for you.

5. Consider buying property. Prices should fall even more, so I'd wait, maybe next year. (IMHO.) Additionally, interest rates should go down (very slightly) in 6-9 months. You may not have enough money now, but if you can pull in $1000 in savings a year, you're probably clever enough to figure this out.

6. You mentioned the 2050 fund, which is fine, but that's 43 years from now. I thought you wanted to retire early? It's light on emerging markets, IMHO.

Here's my post, if you're interested:

http://thelastpsychiatrist.com/2006/09/how_to_get_rich_in_psychiatry_1.html
posted by TheLastPsychiatrist at 7:57 AM on May 14, 2007 [2 favorites]

I second the advice to put money in a Roth IRA. And the younger you start, the longer your money has to grow. Both Vanguard and T. Rowe Price target retirement funds come highly rated by Morningstar.

Personally, I don't think the 10% bond allocation in the Vanguard 2050 fund is a bad thing. I also think this is a good fund to start with, and once you are more familiar with different types of investments and funds, you can reallocate. So my suggestion is similar to ThePinkSuperhero's, just in a different order.
posted by needled at 8:00 AM on May 14, 2007

One last thing: a quick rule of thumb is take the number 72 and divide by the interest rate, and that's how long it takes to double your money.

So 10% growth a year= 7.2 years to double.

And I also disagree with the CD guy, above. Not only should you save now, but you should look for new ways of savings. Old story: Young guy says he's not earning enough to save anything. Old man says how much do you make and the young guy says $100/week. And Old guy says, would you have taken the job for $90/week? Then you can save $10/week.
posted by TheLastPsychiatrist at 8:00 AM on May 14, 2007

Response by poster: from all the advice iam seeing either roth IRA or the vanguard fund.

For the people who have vanguard, can you give me an estimate on how much in fees you are paying for the "invest and forget it" approach.

In roth IRA i understand there is a minimum, yearly investment till a retirement age. Are there any fess associated with it, any catch or anything?

Iam planning this money to be permanently in an account, without touching it for x amnt of years.
posted by radsqd at 8:39 AM on May 14, 2007

In roth IRA i understand there is a minimum, yearly investment till a retirement age.

There's no minimum annual investment once you open the account (assuming you open with the $3k fund minimum; I think you can bypass that minimum if you set up direct deposit to the account).
posted by ThePinkSuperhero at 8:41 AM on May 14, 2007 [1 favorite]

radsqd: the fund and the type of IRA are not mutually exclusive. That is, you would open a Roth IRA with Vanguard and your investment would be in the targeted fund. You can also buy additional funds at a later date so that your whole Roth IRA is invested in anywhere from 1 to X different funds.

There is no minimum other than what is set by Vanguard (or whomever) to open an account. You don't have to invest a minimum amount from year to year. With IRAs there is a maximum per year, however, and it is income-dependent. Currently the maximum is $4k/year. I think for 2008 it goes up to $4500. You'll have to check with Vanguard about the fees. In most of the fund families I know of, any minimum annual fee is waived once the balance of a fund is above some threshhold (say, $4k -- again, it'll be clearly stated either on the website or in the prospectus for the fund).
posted by contessa at 8:57 AM on May 14, 2007

Also to clarify about minimums: Some fund families such as Vanguard set a minimum amount that you can invest at any one time, but there is no requirement from any fund broker that I know of that you have to have a consistent minimum investment from year to year. For example, if you invest in Vanguard 2050 (VFIFX), the minimum initial investment that you can make is $3000. This gets you into the fund. If you want to continue to invest at any point later, the Vanguard-imposed minimum you can add to the account is $100. However you don't have to add anything on any time schedule at all if you don't want to or can't.

I found all the above here on the Vanguard site for the fund you are interested in. Other companies (Fidelity, T. Rowe Price, etc) would have similar pages with minimums and fee information, which vary from company to company.
posted by contessa at 9:16 AM on May 14, 2007

rad, i'm in exactly your position.

I went to TD Ameritrade, started a roth IRA. Within the Roth IRA, I picked the Vanguard fund. Took about an hour's worth of time over a week or so.
posted by unexpected at 9:27 AM on May 14, 2007

radsqd, you can do both the ideas you have in mind at the same time with the same money. The Roth IRA is a way to get tax deferred growth on your money, but it doesn't specify what kind of growth. If you put the money in a Roth IRA, *at* Vanguard, you can then put it into the Vanguard 2050 fund. Then, when it grows, you will not have to pay taxes on those dividends and income that you'll be getting. This is called 'owning the Vanguard 2050 fund inside a Roth IRA.'

I think this is a fantastic idea, by the way. I'd be hard pressed to think of a better idea.

TheLastPsychiatrist is giving you advice on specific stocks and specific sectors (emerging markets). Never take anyone's word on this kind of advice. Do the research for yourself. If you want to learn to research individual stocks, two books I found helpful were Graham's Intelligent Investor and Lynch's Beating the Street.
posted by ikkyu2 at 10:02 AM on May 14, 2007 [1 favorite]

Vanguard is a great outfit. Starting to put something back for retirement at your age is one of the best things you can possibly do. Because of the laws at the time I wasn't able to start until I was 25 and due to my financial situation was only able to put $1K or so per year away for the first four or five years. For the last 15 or so years I've be putting in 10 to 20% of my salary every year.

Here's the thing, I would estimate that a good 20% of what is in my 401K today was generated by those paltry sums I put in when I was 25-30.

If you do what you're talking about my bet is that you will one day be a very happy 50 year-old.
posted by Carbolic at 10:36 AM on May 14, 2007

Er, I wrote tax deferred, but I meant tax free. Bother.
posted by ikkyu2 at 12:12 PM on May 14, 2007

Remember too with Roth IRAs there is an income cap; I think $95,000 for single filers this year. If you ever reach a point where you make more than the cap you won't be able to contribute to a Roth IRA any longer. Just another reason to get the cash in now.
posted by rsk at 3:06 PM on May 14, 2007

The only thing that I would add that no one has yet mentioned, is that investing can make your financial life feel more like a game. You'll start asking yourself if you really need that new pair of pants now, or if that sushi dinner could be replaced by an in' n' out burger.

If you get consumed by this thinking (as my dad was) he had a ton of cash and his only hobby was to pinch pennies and try to live on less and less every year. There was even a sadistic pleasure in it all for him.

But as long as you avoid that extreme, you are making the right choices and going in the right direction. Man, now I wish I would have listened to to some of what the old man's was trying to tell me.
posted by |n$eCur3 at 3:11 PM on May 14, 2007 [2 favorites]

Good work to be socking something away, although I agree your priorities may change, so don't feel bad if in five years you start saving for as round the world trip or something else more immediate.
One thing to consider is with a 20 year+ investment window you can responsibly look at higher risk investments, an example might be in Asian funds perhaps.
On this theme a manager like vanguard has so much money it is hard to make meaningful investments in smaller, higher growth and risk vehicles, so perhaps a smaller fund that can invest more actively might be worth considering.
If you had 1million to invest it would be possible to monitor a few investments closely, but when you have billions you limit yourself to investing in big stuff, forgoing a small investment that might easily double.
The law of large numbers means it is easier to go from 1mill to two than 1000mill to 2000mill, so smaller funds tend to have some advantages in accessing smaller opportunites.
All that said, you have done the hard work in getting started, and deciding where to sink the money is just window dressing. Nearly anything you choose will come up trumps over the longer term.
posted by bystander at 4:58 AM on May 15, 2007