Millennials: Two Words, Four Letter
On June 28th, I appeared on a Facebook broadcast of BoldTV (to see the recording look up BoldTV on Facebook - I appear at about 34 minutes). At the beginning of the interview, I mentioned the two words and four letters that I believe are key to get millennials started investing. However, halfway through the interview we changed topics and I was never able to share the full concept. For that reason, this brief article:
Investing seems daunting to most people, but I can imagine it is particularly difficult for millennials. Long ago, I was the 1970s version.
First, there never seemed to be enough money leftover after bills to save much. Even it you could save a little, there wasn’t any place to invest small amounts of money, except passbook savings accounts (if you don’t know, don’t ask).
Today’s investment choices are huge, too huge. Which means that, in addition to the difficulty of saving, you have the confusion of too many confusing choices. Let me simply the process ofbeginning to build the wealth you’ll need to retire comfortably.
It starts with two words: Acorns and Roth. Making yourself save is hard. Yet, hundreds of dollars pile up in coin jars and penny banks. Because of electronic payment systems, millennials actually have a potential saving advantage because of an app called Acorns (acorns.com). Simply link your bank and credit accounts and Acorns will round up your purchases and invest that money in a portfolio of no-load index ETFs. In less than 18 months, I have been able to save over $1,500 with no effort on my part.
Our next word is Roth, as in Roth-IRA. You need one. It’s a tax-free way to save for retirement. Up to $5,500 can be placed in a Roth-IRA account every year. While that may seem daunting, I have an idea to make it easier to fund: Stop asking for stuff for holidays and birthdays. Instead, encourage those who give you gifts to contribute to your Roth.
The key to creating wealth for retirement is funding a tax-free Roth IRA as soon as possible. Because it’s hard to save enough to fund a Roth, why not forgo future presents of stuff and ask instead for gifts of contributions to your IRA.
The trick is setting up the right Roth. Most “financial advisors” who accept small accounts charge outrageous fees and commissions. Vanguard has a $3,000 minimum in most cases. However, there is one discount broker who will take small accounts and can invest your money in to a broadly diversified portfolio of stocks from Vanguard.
The first two letters to remember are TD, as in TD Ameritrade. They currently offer a no-minimum, no-fee Roth IRA. The next two letters are VT. That’s the ticker symbol for Vanguard’s Total World Stock ETF. This fund owns over 7,500 stocks divided pretty evenly between the US and overseas. It’s annual expenses are about 1/10th of one percent per year and TD is waiving all transaction fees or commissions.
So, even if you only have $100 in annual earned income, you can open a Roth IRA at TD Ameritrade with $100 and own most of the publicly traded stocks in the world at a very small cost.
So, start investing with Acorns, open a Roth IRA with TD and invest it in VT. Do all of this in your 20s and when you get to your 60s you should be in a position to retire VERY comfortably.