If you don’t have access to a 401K, an IRA is a great option. All you need is earned income, and you are off to the races. An IRA stands for an Individual Retirement Account, and in 2015 you can contribute up to $5500 if you are under 50 in this account.
If you don’t have access to another retirement account like a 401(k), then your contribution might be tax-deductible. You would need to run your situation by an accountant, because each person’s situation is uniquely different. If you can contribute to a 401(k) at work, then a % of your contribution might be tax-deductible. You can look this all up online as well – there are tons of articles to point you in a good direction.
Think of it as part of your savings strategy. If you can’t contribute $5500, maybe you can contribute $25 a month, or $100, or even just $10. Whatever you can contribute will be helpful towards your goal.
The most popular places to set up an IRA are Fidelity, Vanguard and T. Rowe Price. You can do this all online, but most places require a min contribution of $1,000 – but go online with each to find out the minimums, some are as low as $25. Anyone can help you, and it’s their job to do so.
The best way to invest is with a consistent direct contribution form a paycheck. It’s like reverse auto debit- the money comes right out of your paycheck and you never know you had it – expect it’s growing on the side, instead of shrinking like when you pay bills.
This is called dollar cost averaging and it means that you are contributing the same amount on a regular schedule forgetting about the stock price. The object is sometimes you are buying a fund at a high price, and sometimes a low price, but in the end it is all averaging out. It’s the consistency that really yields a lot of money growing in a retirement account.
There are all sorts of calculators online as well to help you figure out how much your account might grow to given different factors.
What funds should you choose – well that depends on your risk tolerance meaning, how much risk you are willing to take for a given return? If you want a 18% return, then you might need to be risky…if you want a 5% return, then you could be more conservative. This is individualized, so there is no one-size-fits-all investment strategy. What you will want to check out is an asset allocation tool online, which help you figure out what works for you given your risk and your age- CNN Money has a good one.
Once you’ve figured out your appropriate asset allocation given the risk you want to take, you can then start picking mutual funds or EFT’s. EFT’s are popular now because they offer low investment expense, meaning you aren’t paying a lot for the fund and they are like a stock and a mutual fund hybrid. Other popular option are Lifestyle Funds that match your expected retirement date- so you just pick when you are set to retire, and they invest based on your age and retirement date.
Also index funds – like a total stock market Index Fund that is comprised of a bunch of stocks that are like in the S&P 500 – might have Apple, Exon, Johnson and Johnson, Google, Wells Fargo, etc. ….all US companies.
You really have to figure out what it is that YOU like- not what your friend, or your parent’s, or whatever author of an article online likes. Do some research so you know what you are buying. It’s really important.