How You Can Start Your Serious Retirement Portfolio With Just 1000 (One Thousand) Dollars

The Key to a Good Retirement Portfolio is Time

If I could go back in time and explain anything to my teenage self, it would be the thing I am about to write about right now. If you or someone you know is working their first job, then this article is the most important article you'll read about retiring this week.

  1. Start Early - Waiting until you think about settling down is a recipe for disaster. Start your retirement planning right now.
  2. Leave your IRA alone! - Ira's have huge tax advantages - Roth IRAs, in particular. You want to leave your investments completely alone, untouched and building up interest.
  3. Find a mentor! - Look around you at your friends and family for the people who seem to have their financial house in order. You may be surprised to learn there's a real financial guru in your family, able to guide you down a path of financial success.
  4. Invest at your comfort level: If someone can't explain their retirement strategy in five minutes or less, it's probably not a good strategy for you to follow.
  5. Keep it simple! - The simpler your retirement plan is, the harder it is to mess up! Keeping your strategy simple will protect you from the fads that blow through the financial industry noise machines, constantly buzzing about this or that product or service until the bubble bursts.

I Have a Thousand Dollars. What do I do?

The first thing you're going to need is one thousand dollars saved up, that you can put away in your vault for thirty years. This is money you will never touch again, even in dire emergencies. This money is going to be planted into the ground, where it can take seed and flower your retirement, and must never be touched for any reason whatsoever after your initial investment until your 60th birthday. This is not your emergency savings account. This is not your home investment fund. This money is going to do exactly one thing: prepare you for retirement.

Got your thousand dollars? Okay. Now, figure out what year you plan to retire. For instance, I'm 37, so I'm going to retire, at the age of 60, in 23 years. That's 2034. Knowing that, I'm going round up or down to the nearest multiple of five. That's 2035. Now I know the fund I will choose to invest in.

Now, I take my 1000 dollars to discount brokerage service Vanguard and I select a Target Retirement 2035 Portfolio. This investment portfolio will automatically re-adjust in the diverse range of brokerage services to diminish my investment risk as I get closer to retirement, protecting me from econopocalypses now and in the future, while still allowing me opportunities to profit from high risk, high gain opportunities like equities.

The initial investment is 1000 dollars to open the account. It's a simple, and painless process.

The important thing to remember is that you want your retirement account listed as a retirement account for tax purposes. If you quality for a ROTH IRA that's the kind of account you want! (if you don't know if you qualify or not, you probably do!) If you already have a ROTH IRA account, or do not qualify for one, a Traditional, Simple IRA is what you want. Reinvest the dividends. Reinvest any capital gains. Reinvest everything.

What that means, with these options, is that you won't have to pay taxes on any money earned through these investments until it has had twenty years of interest and reinvestment growth. Think about all your reinvested dividends without a single tax to dampen down your investment's compound interest!

The hard part will be keeping your hands off the money for twenty or thirty years while it grows. Remember, this money is more than just your retirement income. It will be your legacy for your loved ones after you are gone. Put it away, and be prepared to leave it alone until you retire.

1000 Dollars Isn't Enough! What Do I Do Now?

First things first: Set up an automatic monthly deposit of about 50-300 dollars that will happen automatically into your retirement account. Don't over-invest in your retirement. Remember, you get to have more than one mutual fund, in more than one kind of account!

It's a good idea to have an investment portfolio that is not just retirement, because when you reap the rewards of your careful, methodical investing, you may want to use it to help a family member or make a large purchase for your family before you turn 60. I pay for my children's private elementary school tuition with a mutual fund that I have been investing into for years before i even knew I was going to have children! (Talk to your financial adviser about setting up a separate, non-retirement account to plan for the expenses you will have over the different 5, 10, and 15 year time horizons of your life.)

Now, there's only one other thing to do with your retirement fund, and that's make certain you are always rolling your 401 (k) into your retirement account as you move from one job to another.

If you're anything like me, you've had a couple jobs over the years. As much as you'd love to stay at one company until retirement, the whims of the industry and the modern business climate means that people are disposable and opportunities for career advancement only come from new positions at new companies.

This means you're going to leave a lot of 401(k) accounts investing in different companies as your career matures over time.

Instead of just letting them sit wherever they ended up, roll them over into your Target Retirement Portfolio as soon as you leave a company.

Remember, this is your money, and keeping it centrally located is more than just a way to make your life simpler. It's also a way to help the people who are your beneficiaries reach your money in case you are incapacitated. The simpler your investments are, the easier it will be for your spouse or loved one to pick up the pieces of their life if something happens to you. Rolling your 401 (k) accounts into your Vanguard IRA is a great way to make sure your spouse and loved ones don't have to spend months struggling with accountants and lawyers to make sense of what you left behind.

Talk to your financial adviser at Vanguard about how to do this, so you can keep your retirement portfolio clean, organized, and prepared for your beneficiaries in case something should happen to you, and in a state where you can easily maintain your retirement account! The less you have to worry about your retirement, the more time you have to spend living your life before retirement!

Simple Plans That Shouldn't Implode

A Target Retirement Fund should be the bedrock of your very simple, very easy-to-manage retirement portfolio. Geniuses lose thousands of dollars in the stock market every day. Warren Buffet takes pride in his simple but not simple-minded approach of value investing. The real key to your retirement is living a full, rich life pursuing your interests, and earning income at your chosen profession.

A simple plan, with automatic reinvesting to adjust for risk over time, is one of the easiest and safest retirement portfolios out there, and with a respected company like Vanguard, who are famous for having some of the lowest management costs on the planet, with no hidden or unexpected fees, you will feel secure in your future.

FIND A MENTOR!

You don't need to buy books, follow websites, or seek out cablenews investment gurus. You only need to look to your network of friends and family for successful, money-smart people. As a teenager, I should have sat my mother down one day and had a long conversation about personal finances. She tried to site me down, and it was about as successful as talking to a teenager about investing could be, considering my interests at the time were the Rolling Stones and Girls.

If I was smarter, I'd have actually paid attention. It took a while, but I came around. Now, I would be loathe to consider any investment or capital purchase without talking to my mother about it first. It isn't that I let her make my decisions for me, it's that she's a ridiculously savvy investor and businesswoman who charges other people for her world class business acumen. I can get that same advice and expertise for free, because I am her loving son. She is my "mentor" in personal finance. If she wasn't so clever, I'd turn to one of my uncles, who happens to have about four "nice" retirement properties across the eastern seaboard, with all the mortgages paid off on a police officer's salary. Look around, and search for family and close friends that have their financial house in order. Take them out to lunch. Ask them for advice.

No financial adviser will know you as well as your friends and family, and you can trust your mentor's advice more because they do not profit from giving it.

Keep it Simple!

There are few rules in business as tried and true as the fact that the more complex someone's business plan is, the more likely it is to explode all over the place in red ink. The more ways something could possibly go wrong, the more ways it goes wrong. Remember, it wasn't that the banks were lending terrible mortgages in the Econopocalypse of the Great Recession, it was that the banks were repackaging these awful, toxic mortgages as AAA-grade securities through chicanery and accounting tricks.

If a business plan doesn't make sense in under five minutes, it is probably not a good plan. The same is true in investing.

Don't let anyone try to confuse you with their latest hot stock tip, or must buy fund. Hype is a sure sign that something's wrong with the investment, because it looks like a deal that is perhaps too good to be true. And, generally, these sorts of investments "bubble" as hype rises and falls, regardless of the actual value of the investment. It can be a headache keeping track of all the noise in the investment world!

With all that hype and noise, it is easy to lose sight of your actual, long-term strategy of diversified investments that re-adjust for risk over time through your single mutual fund, targeting your retirement date.

Keep your retirement planning simple. Keep your investment strategy simple. Don't let the noise distract you from your long-term strategy!

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Say Yes To Life 20 months ago from Big Island of Hawaii

Excellent advice! I'd like to add some relatively painless ways to save money:

1) When you get your paycheck, immediately deduct a small amount. If you get automatic deposit, ferret it into your passbook savings. If you still get a paper check, put it in a piggy bank. Regarding your advice to save $50 a month - that adds up to $12.50 a week, if you're paid weekly. Then, every few months, place the money in your retirement vehicle.

2) If you qualify for a 401k or 403b, you can deduct as much as 15% without it significantly affecting your net pay. When you change jobs, move it into your retirement vehicle.

3) If your tax refunds are significant, and you don't have a ton of bills to pay off, place some or all of it in your retirement vehicle.

4) To figure out how much you need to maintain your same standard of living at retirement, multiply your typical annual income by 20. Look for a retirement vehicle that pays at least 5%, and live on that. Better yet, find one that pays more, and live on 5%, so you can get annual cost of living increases. In America, the typical annual inflation rate is 3%.

5) You may want to invest in riskier venues while you have time to recover from downturns, then move to safer but lower paying ones when you approach retirement. Remember the rule of 72; divide your interest rate by 72, and that tells you how long it would take your money to double if you left it in there and forgot about it. Example: if you get something that pays 8%, your money will double in 9 years; faster if you continually add to it, because of compounding interest. (Using this rule, how long will it take for the cost of living in the US to double?)

6) Most important of all, remember; saving is NOT self-deprivation! Rather, it is a way to have your money work for you, which is the easiest way to earn money. If you have a 401k, you are paid twice; your net pay today, and the money you will live on in the future. Also, if you double $1000 10 times, you will have $1,024,000! It is highly unlikely you can find a venue with an interest rate high enough for you to just put $1000 in there and have it be that much when you retire, so your best bet is to add to it regularly.

Wealth, ultimately, is attitude more than anything else.

P.S. I wish I’d known this as a teen, too!

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