How do I start growing a nest egg for retirement with very little savings?
How do I start saving for retirement with less than $5,000? I'm receiving monthly survivor's benefits and want to put the money in some kind of savings that will help build a nest egg. Recent bank experience just showed that I don't know what I'm doing and my bank isn't a big help. One year of a $1,000 CD yielded me $2.50. I'm very disappointed and need a better plan for how to grow my money.
Hello, thank you for the question. First, accumulate an emergency savings account worth three to six months of your monthly living expenses. This money should be stored in a checking, savings or money market account so that it's accessible when needed and not at risk. Then you'd want to understand the amount of risk that you're willing to take with the investment money to achieve your retirement goals. You can probably find some basic risk tolerance questionnaire’s online. The amount of risk that you're comfortable with will then help guide you to a matching portfolio that's suitable for your investment objectives. I'd also suggest finding a CERTIFIED FINANCIAL PLANNER™ in your local area to help you with this and creating a retirement plan. You can search for a financial planner in your zip code at www.letsmakeaplan.org. A good planner can create a written retirement plan that will help you discern how much money you'll need to retire, how much income you can take from your portfolio and what return you'll need on your investments to fund your retirement income long-term. Most will offer a free consult and by all means talk to several to find one with whom you're comfortable with before moving forward. Often bank representatives just want to sell you products whereas a CFP® has a fiduciary duty to do what's in your best interests and to be fair they work in banks too. To summarize, have an emergency savings account, engage a good financial planner to help you create a plan, complete a risk tolerance questionnaire, select a portfolio then invest. Hope this helps and all the best with your financial planning goals!
The great news is, there’s lots of options! Even an online savings account, like one through Ally Bank, have a 2% rate of return, so there’s no reason for you to be putting your money in a CD at your local bank at this point. Depending on your time horizon I would encourage you to consider investing in ETFs. They don’t have the same minimums that some mutual funds do and you can still achieve similar levels of diversification. This is a little bit easier said than done, however. You’ll need to consider your personal risk tolerance, how far you have until retirement, and then look for good diversified assets based on that. There are financial advisors out there that may be far more affordable than what you initially imagined, so it may be worth looking into. Your retirement savings get increasingly critical as you approach retirement age, so it’s always better to start asking questions sooner rather than later!
Depending on your age and time horizon, there are a lot of options available to you as far as where to put your savings. To answer your question on how do you start saving, every little bit helps. I would recommend setting up a systematic way to help you save for retirement like contributing to a retirement plan (401k) which would come out of your pay every pay period or set up an IRA and have an amount you're comfortable with automatically deposited from your account (like the 15th of every month). This, over time, will help you grow your retirement savings.
I would recommend reading a little book called; The Richest Man in Babylon by George Clason. It’s a quick read and will help put your savings into perspective.
Secondly, you are correct with interests rates still near historical lows, you won’t find much growth opportunities in CDs. I would look first into investing in some type of index fund (either mutual fund or ETF). It could be either a stock index like the S&P 500 if you're more growth oriented or a Bond Index Fund.
Starting to invest to receieve better than 0.25% over a year is important.
The simple answer is to open up a Roth IRA and invest into securities (stocks, bonds, ETF, mutual fund) that follow your risk tolerance.
Your risk tolerance will be able to determine how your money should be invested. For example, a CD is very conservative because it holds your premium and there's not a lot going on in terms of return.
The longer answer is to use a trusted advisor who will look out for your financial goals and objectives. That way they can take into account your risk tolerance, goals, objectives, and expenses and put together a comprehensive financial plan that can be the first step to putting you on the right path.
1. Find your risk tolerance (very conservative, conservative, moderate, aggressive, very aggressive)
2. What are your financial objectives (pay off debt, buy a house, student loans)
3. What are your financial goals (retire, retire early, start a business, second home, financial freedom)
There are advisors out there that help people getting started with little saved. It is always nice to remember, find a path. Obstacles and bumps are a part of life but knowing your path can put you back on a track you set up.
Dear How do I start to grow a nest egg for Retirement with very little savings having been disappointed with current CD returns, while expressing a need to have a better Plan to Grow Money going forward?
NEW TO INVESTING
You state you are starting with less than $5,000, recieving monthly survivor benefits, wishing to put money recieved to good use to build a nest egg for your future. Trust me, it does not matter when or how you start. The critical point is that you are starting. The mindset comes before the actual journey.
Vow now to build a nest egg, to improve your investment experience, to learn that with time and diligent education and learning about the power if investing in yourself and your money you will never be disappointed with investing your hard earned money going forward to make your money grow for the long term.
First, whatever loss you have suffered, take time to acknowledge loss. Do not make financial changes quickly as you commence receiving survivor benefits. Take time to grieve precious people. This matters.
Construct a mental strategy focused on accumulation of assets versus spending precious assets. To accumulate financial savings and amass assets automatically and systematically long term deliberately will translate into long term gains. Take time and plan long term. You will benefit with patience and time.
Past bank experience did not give you what you felt was required in your portfolio. This evaluation is critical, timely and will serve you well going forward. Study yourself, take control of your method of asset accumulation. You are well advised to consult with an expert advisor, know your risk tolerance and understand your time horizon. This precious information shapes how and where you invest your money.
Investing in a CD had little effect on the accumulation of gains to your portfolio. Though some individuals will place money in CDs claiming they want no risk, it appears you appreciate the time value of money and you are willing to take on some degree of risk to make long term gains.
Going forward, create a financial plan, know your risk tolerance, know the products you can choose from and the time horizon for each product. Then undersand expenses, explore your options with your money.
LONG TERM FINANCIAL PLANNING
There is power in a strategic plan. Utilizing a plan of action, be frugal and invest your survivor benefits deposited into select accounts as chosen by yourself or a select Advisor. Diversify funds into select companies and products (ETF, INDEX, MUTUAL FUNDS) long term.
Openly discuss your financial plan with a trusted fiduciary advisor clearly (an empowered investor) and take steps to be actively involved in the growth of assets over time. Vow to remain ultimately in control.
An Emergency Fund saves you both you in case of emergencies; events unexpected, necessary and urgent expenses that must be planned for regardless. Differentiate this fund from any and all cost of living expenses, all investment accounts.The Emergency Fund is separate from a source of money to save for another home, money for school, money for food and clothing. Such Emergency Fund money is allocated for emergencies only; things that happen in life, not expected but they happen unfortunately; sudden loss of income, sudden illness, something you must do for a family member or friend, a tragedy or disaster that happens. This is what life is about. Unfortunate but true. No one else is going to plan for it but you.
Have a financially secure mindset as if you are already financially independemt - allow the language to preceed the reality. Take time to understand the action of the market prior to staring to invest. Have the Advisor of choice show you their client returns for 1, 5 and 10 year periods.
Work with someone to manage your money. Should someone push or encourage you to move money quickly move on. Allow yourself to gain trust first then act once you possess a clear understanding of your situation. Understand money. Others have made a small fortune with compound earnings over the years.
Utilize inherited funds as long term investments, spend only the interest earned versus spending the inheritance. Keep this mantra strong and clear, speak it and chant it daily to focus on saving, investing, budgeting, creating a firm strategy to be financially independent.
LONG TERM PLANNING
Time passes quickly. Acknowledge at some point you may have a need for the assets accumulated, you may wish to retire and travel. Do your home, find the best advisor, one that communicates well, one that advocates for you and your interests with your money. Take time to learn, read and explore the power of the investment markets. Stay in control. Find an Advisor willing to listen, take the time to assist you learn before they invest monies. If you feel pressure to have products or services, run, run, run.
THE INVESTMENT PROCESS-
LEARN, LEARN, LEARN
Learn about diverse Mutual Funds/ETF (exchange traded funds) from a mentor and the ability to invest in multiple companies within a fund seeking stable 1, 5 and 10 year returns with greater returns achieved long term and decreased risk over time while keeping costs to a minimum. Markets fluxuate, acknowledge this.
Only make decisions to move money based on the return on investment long term that can be accumulated and or expected long term. The ability to take on a small or moderate amount of risk is not a bad thing- ultimately this is your choice !!
Realize any investment in an IRA is a long term investment (period) as such is meant that any investment be made in superior companies poised to do well for the long term. Therefore, you must research the best companies, industries so that you benefit from their good business acumen over time ...(Amazon, Apple, Microsoft). Acknowledge markets go up and they go down. However money well placed long term into solid companies with good solid earnings will perform well for themselves and for you.
Most IRA accounts will allow an individual to invest in select Mutual Funds. Find out exactly what are your options and from there take time to research individual funds, the stocks within the funds and the 1, 5 and 10 year returns generated in the funds of choice.
Be frugal. Allocate investment funds to growing interest only allowing access to funds to gain interest.
Create a business in your mind -whatever name you want. The goal is to grow money. Act as a financial entrepreneur would act to benefit the money and to honor those who left you survivor benefits long term.
Time goes by quickly, it is not uncommon to wake one day to say where did time and or where did the money go. Do not be one of these people. Grow the money, take the time to learn about money. Do it.
BE FINANCIALLY SAFE
Before you max out a strategy to become financially independent and save utilizing the IRA and the 401K accounts there are manditory steps you must take to empower yourself, to get you mentally, educationally and responsibly ready. This is all part of the process and none of this process can be left out.
Develope a financial conscious mindset. Develop this mind set and be sturdy and firm in this quest.
An emergency fund will save you in case of emergencies; events unexpected, necessary and urgent expenses though events that must be planned for regardless. Differentiate this fund from any and all cost of living expenses. An emergency fund is separate from a source of money to save for a home, money for school, money for food and clothing. Such money must be allocated for emergencies only; things that happen in life, not expected but they happen unfortunately; sudden loss of income, sudden illness, something you must do for a family member or friend, a tragedy or disaster does happen. Unfortunate, No one else is going to plan for your emergencies but you.
REACH FINANCIAL INDEPENDENCE
We are here to guide and to assist. We are passionate about empowering you and your roadmap to achieve financial independence via IRA accounts and any other investment vehicles to allow you to accomplish your dream of financial freedom.
SPEND THE INTEREST-INVEST THE CAPITAL
From yere going forward, compete only with yourselves, for the benefit of you long term, to create an expectation long term that the money made and saved going forward will continue to grow. Get strong to continue on a path of frugality, avoid the latest and greatest deals. Stay in control.
Make your plan visual. Write the plan on paper. As I stated earlier, honor whomever left you survivor benefits and grow the benefit of their interest and inheritance long term to create like purposes of financial security to collaborate as a business financially to manage money and to become stronger over time.
Dedicate yourself to have conversation(s) with yourself and your advisor regularly to formulate a strategy to save long term to attain financial independence. This mind set of mental strength shared is golden in business, in families and individually. You must be on the same page with your advisor about financial expectations. Remember the most important, Communication.
A LIFE OF INVESTING
Whatever investment strategy you create, be certain the return on investment long term benefits both you with long term funds with value and growth strategies and a combination of short term strategies of individual stock selections, where a mindset of saving is key toward the attainment of financial independence.
CD or Money Market accounts are safe but do not yield returns you will demand long term.
BE MENTORED BY EXPERTS
Be meticulous. Carefully and cautiously choose a seasoned financial mentor, dare to seek knowledge, to plan, to read, learn and patiently construct a wealth plan of action which involves focus, commitment and dedication over time to the very best and most promising funds and individual stock selections.
You must be comfortable with the plan. You must personally know and acknowledge the plan and not leave the plan to someone else. Again, YOU are in control no one else. OK.
Today, $10,000 invested in a high yielding ETF, Index and or Mutual Fund compound over thirty to fourty years will get you higher interest rate accrual than you would yield in a CD account by far. For an Index Account or ETF based on the S&P Sector the average annualized return over a ten year period is approximately 10% annualized. For a CD account or money market account far less.
Please do your home work and invest for yield, to benefit you for the long term.
You may see wild market fluxuations, remember all good stocks fluxuate, a natural phenomenon.
With what you have shared, trust yourself, you will be financially indenpendent.
I wish you good fortune and financial independence!
Jan Attard, RIA, MBA, Weath Specialist
J. Oliver Maxwell, LLC