Get Started on Your Retirement now!

A Path to Retirement, For Those Far From It

Hello!

I’m in my 20s and I’ve been really into saving for retirement since I was 18 when I opened up my own individual retirement account (IRA). This morning I read a New York Times article on saving 15% of your gross income just for retirement, then splitting it 33/33/33 percent into these accounts:

  • A US total stock market index fund
  • A international total stock market index fund
  • A US total bond market index fund

In If You Can: How Millennials Can Get Rich Slowly, it recommends doing it on your own. After using MarketRiders (try it and get $25!), I have a gist of what I should do (and what I’ve been doing for the last year) and I wholeheartedly think this is the best idea.

Since I use Fidelity, I use the FREE ETFs (exchange trade funds) that costs nothing to buy or sell (most costs $7.95 per trade at Fidelity). ETFs basically act as mutual funds but costs 0.10-0.30% vs 1-3% (so you keep more money! Woot). It’s a collection of companies in one ‘fund’ which is a great way to diversify. Often you don’t want to own just one company stock just in case it tanks.

Ok, so let’s say you really want to make this happen. Hypothetically, let’s say you have $3000 to invest. That means we will put $1000 into each major category. Here’s how I would break it down using the ETFs I recommend below.

  • A US total stock market index fund

US Stock ETF

I like the S&P 500 ETFs growth (IVW), blend (IVV), and value (IVE) because it follows the S&P 500, which on average over long term, it pulls in 10%. That means if you invested $5000, by the end of the year you’ll get back $500. That’s pretty good to me!

I also like the S&P small cap 600 growth (IJT) because it’s nice to invest in smaller companies. While there’s more ‘risk’ to it, it has a higher potential to bring more back to you.

Using a total of $1000 (as of 5/5/2014*; round up or down as you see fit):
IVW: $250. 1 stock = 100.15* so buy 2 stocks. ($250/$100.15 = 2.5)
IVV: $250. 1 stock = 189.21* so buy 1 stock. ($250/$189.21 = 1.3)
IVE: $250. 1 stock = 87.51* so buy 3 stocks. ($250/$87.51 = 2.9)
IJT: $250. 1 stock = 114.54* so buy 2 stocks ($250/$114.54 = 2.2)

 

  • A international total stock market index fund

International Stock ETF

I bought ACWI, but it’s hard to go wrong with one of the * ones which is a Core ETFs such as emerging markets (IEMG) or total international stock (IXUS).

Using a total of $1000 (as of 5/5/2014):
ACWI: $1000. 1 stock = 58.65 so buy 17 stocks. ($1000/$58.65 = 17)

  • A US total bond market index fund

US Bond ETF

I recommend the Core Total US Bond Market (AGG) and High Yield Corporate Bond (HYG).

Using a total of $1000 (as of 5/5/2014*):
AGG: $500. 1 stock = 108.58* so buy 5 stocks. ($500/$108.58 =4.6)
HYG: $500. 1 stock = 94.00* so buy 5 stock. ($500/$94 = 5.3)

Just keep in mind that as stocks go up, bonds go down and vice versa. Don’t worry about the daily emotions of a stock — think long term. It’s a good idea to look at the profiles of the ETFs or any stock you’re interested in. What is the return? What are the rankings? What companies are they invested in? Do you agree with those selections (ethical investing can come later)?

By the end of the day, your hypothetical $3000 portfolio looks like this:
IVW: $250. 1 stock = 100.15* so buy 2 stocks. ($250/$100.15 = 2.5)
IVV: $250. 1 stock = 189.21* so buy 1 stock. ($250/$189.21 = 1.3)
IVE: $250. 1 stock = 87.51* so buy 3 stocks. ($250/$87.51 = 2.9)
IJT: $250. 1 stock = 114.54* so buy 2 stocks ($250/$114.54 = 2.2)
ACWI: $1000. 1 stock = 58.65 so buy 17 stocks. ($1000/$58.65 = 17)
AGG: $500. 1 stock = 108.58* so buy 5 stocks. ($500/$108.58 =4.6)
HYG: $500. 1 stock = 94.00* so buy 5 stock. ($500/$94 = 5.3)

I hoped that helped.

If doing it on your own is a little scary, the New York Times published an article called Financial Advice for People Who Aren’t Rich comparing other Inexpensive Advice for Index-Fund Investments such as Betterment, WealthFront and more.

assetbuilder, betterment, folio investing, future advisor, hedge able, jemstep portfolio manager, market riders

assetbuilder, betterment, folio investing, future advisor, hedge able, jemstep portfolio manager, market riders

rebalance IRA, SigFig, Target-Date Mutual Funds, Vanguard, Wealthfront, WiseBanyan

rebalance IRA, SigFig, Target-Date Mutual Funds, Vanguard, Wealthfront, WiseBanyan

 

Let me know how it goes!

Posted in Personal Finance and tagged , , .
  • Excellent! Jessica, you are right on with saving for retirement. Let nothing interfere. You are very wise for your young age. I applaud you.

    • Thank you! And thanks for reading my blog. It means a lot to me.

  • jordan

    Hi Jess,

    I love reading your blog. Always very interesting and informative. I live in the NYC area and I finish nursing school this semester and will use your info. Maybe I can ask you some additional questions?

    • Thank you Jordan! Congrats on graduating. Ask me anything.

  • tom

    Glad to hear you got a lot out of the “If You Can” eBook. You are starting off saving and investing with better advice than I ever got at your age. Keep educating yourself. There are good investing blogs out there like obliviousinvestor.com and forums like bogleheads.org.