A Quiet Fortune column: Investing 101 — Index funds can be your key
A Quiet Fortune
Interesting or alarming? The average Social Security check for a retired worker is $1,355 per month as of November 2016. This translates to an income of $16,260 per year.
“Starting to invest for retirement as soon as you finish school and begin earning income is ‘A brilliant financial move,’” according to money.cnn.com. Everyone who gives financial advice says the same thing; there aren’t many disagreements about the importance of investing.
OK, that’s all well and good. But what if you’re way past school age and haven’t started yet? What if you don’t know how? What if you just haven’t had time? What if…
Well, just get over it. Make at least one significantly smart financial move. If you’ve looked around, gathered up some money, decided your take-home pay could be a little bit less each month, maybe started a small business — in short, if you’ve decided to take the path to financial freedom — you can begin to invest. And it can be surprisingly easy.
Today’s topic is investing on your own with index mutual funds.
First, you’ll need to learn a few basic things. Let the Internet do a ton of work for you. While you’re saving some money up, do general searches on “investing basics,” “mutual funds” and “index funds.” Mutual funds, highly recommended by financial advisers for the general public, are packages of stocks that provide a reliable way for people with somewhere around $1,000 to begin a lifetime of investing without having to master the intricacies of the financial world.
Why the stock market? Over the decades, despite its swings up and down, it has been one of the best ways to make money grow. Because interest rates are so low these days, the market far surpasses any type of savings/CD/money market vehicle.
Next, go online and look up some mutual fund providers. Vanguard is the most-often recommended mutual fund group in the United States. That’s for good reason: Vanguard paved the way for people like us. In 1974 John Bogle, Vanguard’s founder, proved that stocks can be available even to regular wage earners. He designed “index mutual funds,” which bundled stocks into groups that closely followed benchmarks like the S&P 500, the Russell 2000 and the Dow; left the highly paid managers out; and dropped fees to a bare minimum.
After jeering at the whole concept for a few years, other investment firms realized that Bogle’s vision was solid: Instead of paying high fees to managers who earn millions picking individual stocks that they think will do well, index fund investors could own groups of companies that have better overall returns because of low fees. Those groups could consist of small or large-cap companies, energy, dividend-paying companies, tech, foreign investments, etc. Popular these days are combinations of stocks and bonds that adjust as you get closer to retirement, keeping your investment balanced.
Today, virtually every investment firm that once sold individual stocks and bonds only to high-income earners now provides index funds that we can buy online. According to the Commission on Thrift, “Today there are hundreds of low-cost index funds … which can be acquired for a [very low] fee.”
Check out some other investment firms that sell index funds. Three of them are T. Rowe Price, Schwab and Fidelity; there are dozens. Use their 800 numbers and give them a call. Feel free to ask questions of any kind, even “dumb” ones. I’ve never run into a representative who didn’t want to help provide information.
Buying mutual funds is not like day trading. When you buy them you’ll be checking out each fund’s rate of return for past years. Because the stock market continually goes up, then down, you’ll want to have a decent past-performance picture. (No guarantees for the future, but it’s one important bit of information.)
I’ll share more about mutual funds next time. Want to move faster? Read more, talk with experts, learn on your own. Or email me. Do something this week: This stuff is really interesting and fairly simple — not to mention a significantly smart move.
Terrie Drake is author of “A Quiet Fortune,” and a retired teacher and librarian. She and her husband have lived in Glenwood Springs since 1974. She is not a financial adviser; consult a competent professional for your personal financial solutions. She can be reached at email@example.com.
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