How Do You Feel About Spyders (ETFs)

I prefer to just swing/day trade. It's much more exciting.

But seriously, I can't wait until I actually have some money to manage. Until student loans are killed, I'll let dreams be dreams for now.

One of the most difficult things for me to do when I was your age is to put money I had at the present into a retirement account. It's hard to think about what you'll have in the bank at age 65 when you have so little in your early 20s.

But now I'm really glad I did. I've built up a lot in savings by doing that and I'm ready to retire...in 30 years.

So why does there seem to be a rising popularity for ETFs? Is it because the brokers are pushing it to get a higher commission?

By the way I would be charged a 1% commission


Can you elaborate?

Can you elaborate?

My financial svengali would get 1% of the value of my account at the end of the year. So if the value of my Roth IRA for example is at $70,000 at the end of the fiscal year he'll get 1% of that as his comission.

My financial svengali would get 1% of the value of my account at the end of the year. So if the value of my Roth IRA for example is at $70,000 at the end of the fiscal year he'll get 1% of that as his comission.

That's about what I figured, for S&P 500 index funds at Vanguard and Fidelity, you'd pay under 0.2%.

So why does there seem to be a rising popularity for ETFs? Is it because the brokers are pushing it to get a higher commission?

By the way I would be charged a 1% commission

In a word, yes.

One of the most difficult things for me to do when I was your age is to put money I had at the present into a retirement account. It's hard to think about what you'll have in the bank at age 65 when you have so little in your early 20s.

But now I'm really glad I did. I've built up a lot in savings by doing that and I'm ready to retire...in 30 years.

Yes for sure.

We're all perfectly cabable of calculating it, but we don't all calculate it, so let's calculate it for Rob and anybody else out there who's curious:

Imagine that you invest in the S&P 500 index funds. The S&P historically returns around 9%. Some years are up, some years are down, but when all is said and done it works out to 9% per year. So you sock the money away and ride the ups and downs:

If you put $1000 away at age 22, and put it into a S&P 500 index fund, and leave it there until you're 65 (43 years), your account will be worth:

$1000*(1.09^43) = $40,676

If you decide to work for a while before you start saving, and wait until you're 29, and then you decide to put away $1000 into the same S&P 500 fund earning the same 9%, and still retire when you're 65 (36 years), your account will be worth:

$1000*(1.09^36) = $22,251

See that? Delaying by only seven years cost you nearly half of the account's value. That's a principle called the time value of money. The longer you let it accrue interest, the faster and faster it grows. It's like a snowball rolling down a hill, at the top, the snowball just gets a little bigger with every rotation. But as the snowball reaches the bottom of the hill, every rotation makes it grow so much.

The absolute best thing you can do is get time working on your side ASAP. Time is even more important than the investments you pick. When you do the math like I just did, the question isn't whether you can afford to sock away the money now, it's whether you can afford not to when you're 65.

And the beauty of it is you're never too old to start. There's no such thing as "ah well I'm 40, I missed the boat." No way, Jose. You end up with a much bigger account if you start when you're 40 instead of 45. Or 45 instead of 50. Financially speaking, it's never too late, and there's never a better time than right now.

Yes for sure.

We're all perfectly cabable of calculating it, but we don't all calculate it, so let's calculate it for Rob and anybody else out there who's curious:

Imagine that you invest in the S&P 500 index funds. The S&P historically returns around 9%. Some years are up, some years are down, but when all is said and done it works out to 9% per year. So you sock the money away and ride the ups and downs:

If you put $1000 away at age 22, and put it into a S&P 500 index fund, and leave it there until you're 65 (43 years), your account will be worth:

$1000*(1.09^43) = $40,676

If you decide to work for a while before you start saving, and wait until you're 29, and then you decide to put away $1000 into the same S&P 500 fund earning the same 9%, and still retire when you're 65 (36 years), your account will be worth:

$1000*(1.09^36) = $22,251

See that? Delaying by only seven years cost you nearly half of the account's value. That's a principle called the time value of money. The longer you let it accrue interest, the faster and faster it grows. It's like a snowball rolling down a hill, at the top, the snowball just gets a little bigger with every rotation. But as the snowball reaches the bottom of the hill, every rotation makes it grow so much.

The absolute best thing you can do is get time working on your side ASAP. Time is even more important than the investments you pick. When you do the math like I just did, the question isn't whether you can afford to sock away the money now, it's whether you can afford not to when you're 65.

And the beauty of it is you're never too old to start. There's no such thing as "ah well I'm 40, I missed the boat." No way, Jose. You end up with a much bigger account if you start when you're 40 instead of 45. Or 45 instead of 50. Financially speaking, it's never too late, and there's never a better time than right now.

The best advice I ever received was from an analyst who asked a group of coworkers and myself what our greatest asset was. The answer was our age. Time is your friend when it comes to investing.

Some famous guy named Norman Einstein (Let's all give thanks to Joey T for that little nugget) once said:

"The most powerful force in the universe is compound interest”