My First Investing Story
Pinyo is having a giveaway at Moolanomy for sharing your investing story. Up for grabs are five copies (1 per winner) of Wise Investing Made Simple by Larry Swedroe. For my entry, I’m going to talk my first (and only) investing story so far.
A couple weeks ago, I wrote about my best and worst financial decisions so far. It just so happens that my best financial decision so far is also my first investing story. I don’t want to repeat it word-for-word, so I’ll give a brief summary and then talk about what I’ve learned from my first investing experience.
Summary
It was the summer of ‘03, and I was working a summer job in California. Being a college student, I saving money by eating disgustingly cheap meals, living with roommates, and carpooling. As the end of summer approached, I realized that I was experiencing something I had never experienced before — having money to spare.
It was tempting to spend the money on things that I really wanted at the time. I have to admit that immediate gratification is hard to resist sometimes. I’m not sure if it was luck, fate, or my own free will, but I came across an article about the power of compounding interest. It talked about how you could be a millionaire by retirement if you start investing early enough in the right places. This sounded like fun to me, so I did more research and opened a Roth IRA at the ripe old age of 22. Rock on!
Since then, I’ve contributed to my Roth IRA when I’ve had some money to spare from summer jobs. Everything is invested in Vanguard index funds, and it’s been great so far. With the index funds, there’s little to no maintenance involved (that didn’t keep me from checking my balance every day at the beginning). As of right now, my investments are around a 40% gain. I look forward to being able to max out my Roth IRA contributions each year once I finish grad school and start my first “real” job.
What I Learned
Be proactive
They don’t teach you about saving, investing, Roth IRAs, or mutual funds in college. My parents never talked to me about those topics either. I took the initiative to do the research on my own. There’s a wealth of great information on the Internet and in books. I started out by reading The Motley Fool, which I think is a good place to start.
Start early
I got a fairly early start at age 22, but I haven’t been able to contribute regularly since then. If I could turn back time, I probably would have opened a Roth IRA when I got my first job in high school. The younger you start, the less you have to invest to reach your ultimate goal because of the power of compounding interest.
Be patient
A Roth IRA is a long term investment — in my case, decades. Some people will find this hard to swallow. It’s hard for me, because it has put me in more debt for now. In the long run, there will be a huge payoff though, and I keep reminding myself of this.
What’s your story?
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I too learned zip from college and parents regarding investing. I’m 24 and I haven’t started saving for retirement. With the new year starting, my plan is to thouroughly do my research and open up a Roth IRA the first of the new year.
I was also reading that Vanguard is a great place to get a Roth IRA. Do you just sign up with them and do you get to decide how your money is invested (ie an index fund in your case)?
@Keiichi: Be careful with Vanguard. You need a $1000 initial contribution if you choose a STAR fund, and a $2000 initial contribution for their retirement year-based funds. If you wish to do this with no fee, you must contribute the specified amount and elect for electronic statements. Additional contributions are $100 minimum unless you choose to do automatic monthly contributions, which are $50 minimum.
Also, from what I hear, many people consider Vanguard to be more of a “conservative” place to open up investment accounts - like someplace your parents might go to. Consider looking into T. Rowe Price as well.
I got most of this information from this post - http://www.getrichslowly.org/blog/2007/06/07/how-to-start-a-roth-ira-and-where-to-do-it/
Also check out The Simple Dollar (thesimpledollar.com) for other good articles, if you’re interested.
Keiichi,
When you sign up for a Roth IRA, you put in an initial contribution and specify how you want your money invested. As Jess mentioned, there’s a fairly high initial investment for a Vanguard account, which makes it difficult if you’re just getting started. You can get around this by opening your Roth IRA at a discount broker, which have lower minimum initial investments. The link Jess posted mentions a few of these. However, you’ll notice that these accounts have more potential fees.
I originally opened my Roth IRA with Scottrade, because the minimum initial investment was lower. At the time, Scottrade didn’t charge a fee to buy/sell Vanguard funds, so it was great. It now costs $17 per transaction for Vanguard funds at Scottrade, so I would no longer recommend it. In fact, I’ve transferred my Roth IRA to Vanguard now that my balance is high enough. Since I’m investing all of my money in Vanguard funds, this makes sense because I can reallocate my money among their funds without any fees.
As far as Vanguard being too conservative, I don’t entirely agree. T. Rowe Price funds do invest a higher percentage in stocks, but this article comparing T. Rowe Price vs. Vanguard shows how easy it is to get a similar asset allocation using Vanguard funds. Vanguard funds also have a lower expense ratio than T. Rowe Price funds, which can have a significant impact on your earnings in the long the run. However, T. Rowe Price has a lower minimum initial investment.
As you can see, I could easily write an entire post about this (and I might in the future). Everyone has their own personal investment strategies, so my suggestion would be to do more research. You’ll inevitably read about different investment strategies and find one that fits your goals. For me, it turned out to be Vanguard funds.
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