How can I get on the right investment path after starting later in life?
I am beginning to invest a little late. I am 44 years old and only have a small amount in a ROTH IRA. I recently took a shot in the dark on a stock ($200) and have been watching it decline. I'm really not worried about it because this was just to "break the ice" so to speak. I have been doing a ton of research and have purchased a book. My question is, what can I do to get on track with a retirement investment account? Should I just dump a bunch of money into several Mutual Funds? Should I diversify with some Mutual funds and play the volatile market? Seems like things are in a downturn right now and soon could be a good time to invest. I would prefer to do this on my own and not pay a local Financial Advisor a bunch of money.
Congratulations! You're getting started at least. But if you fixate on costs and not benefits, you could make some serious mistakes. Find a flat-fee planner. We're worth every penny.
There is a sequence of priorities or "buckets" that you should fund.
1. The first and most important bucket is an Emergency Fund, which needs to be 3-6 months living expenses. This needs to be very liquid so you won't earn much on it. I favor the virtual banks for this function. This fund is important because if you lose your job, have health issues or other unexpected expenses you don't want to have to liquidate- and pay taxes on -your IRA portfolio when the market might be down. So, unless you have a matched savings program through work, you have no business investing until this emergency fund is filled.
2. If you haven't already, defer at least enough into your employer sponsored retirement plan to get the maximum match. If you have no employer plan, work with your tax person to figure out if you qualify for the Saver's Credit. This tax credit can be up to $1000 or half your retirement contribution. If you make too much to qualify, then you should be able to afford maximum IRA contributions of $458/mo. Remember that these contributions reduce your taxable income. Most of the fund families make it very easy to set up IRAs and determine how to allocate.
3. If you still have money left in your budget, then you might toy with individual stocks, preferrably with dividend reinvestment programs (DRIPS).
You can balance risk and return with a low-cost ETF portfolio. Funds are automatically balanced and invested based on your goals and time frame. There, you can open a Roth IRA after initial setup, which comes with an Individual taxable account.
Uh ... you do realize that you are asking a bunch of financial advisors this question, right? I'm going to address that last comment after I answer your question.
The simplest place to begin will be to open an account with Vanguard or some other large, retail retirement provider. Once opened, invest in their all stock-market account. Forget bonds, at least for awhile. Get your US Equity account up to about $20,000 and then start buying an Intermediate Bond ETF until your ratio is about 70% - 80% in your single all stock-market account and 20% - 30% in your bond account. When you have about $50,000 total you can start buying some International holdings (again, stick with ETFs). This will get you started.
Now, with regard to your comment. You'll have a hard time sticking with this or any other plan. In most instances, investors feel pretty confident when the market is rising. Enough so that they can believe that their holding are going up because of their wisdom and insight. But when the market reverses (and if history is our teacher we can count on the markets reversing) inexperienced investors can panic, sell out when things are bad, and wait until things are great before re-entering. In other words, they sell low and buy high.
The Financial Advisor, particularly those who are fee-only, can actually save you a bunch of money by providing the experience needed to help you stay disciplined when you want to panic. My advice: start with the simple investment plan outlined above, but start working with an advisor who will 1) help you create a comprehensive wealth plan - including your expected life stages, 2) design an investment plan around those goals, and 3) provide the support you will need when the market reverses.
Way to go! It's never too late. You have time if you stay focused and discplined. At 44 you have, possibly 30-50yrs ahead for investing. Your best friend is time, not timing the "market". First, if you have a retirement plan at work, look into that plan, they may match your contribution, meaning free money. If no plan at work, Roth IRA's are great, assuming you have a good 3-6 month emrgency fund, no consumer debt, and manage your cash flow, i.e. have a budget. The adavantage of mutual funds is you're hiring profile managers to do all the research for you on what industries do well in certain economic conditions, what companies in those industries are doing well etc...they're looking under the hood to determine if a particular company is a good long term investment. An idex or ETF fund simply matches a particular index. You should diversify, this is a key principle to long term success. A great article on diversification:
"Paying a local fiduciary advisor bunch of money" is not always a bad thing. At the end of the day, all advisors in this forum service their local community and charge a fee for this service. As long as you receive enough value from this service, you will benefit from that relationship.
Most advisors on this forum will recommend that you diversify your savings. Whether will be a bunch of mutual funds or ETFs, the key is to be disciplined in your approach and save at least 10%-15% of your annual income. You can maximize your Roth IRA contributions, which are up to $5,500 per year and save the rest in your employer retirement plan or a brokerage account. You also might want to check services like Betterment, WealthFront, Vanguard, and Schwab.