I'm 46 years old and have no savings, but I have $1,000 to start investing; where do I start?
Do I put my $1,000 into a single safe bond, split it into two different investments, or should I place it all in a money market account? With such a tiny seed, where do I plant it to grow a tree? I'm an accounting student and plan upon graduation to invest 50 percent of my income starting with my first job. I will be able to do this due to my husband's income. What's the best plan for starting this late in the game? Should I use short-term bonds?
Congratulations on beginning to save AND on graduating! With saving for retirement your primary objective, you really need to work with a CFP® to develop a financial plan focused on retirement. Unfortunately, due to regulations we cannot give specific investment advice.
Start saving in a regular savings account until you have a financial plan developed. If your bank has financial advisors, schedule a meeting with them.
Before giving any investment advice, they will require you to complete a risk assessment. Once they have this information, they'll put together an investment plan using mutual funds and ETFs to meet your risk profile.
You'll need to save a lot to make up for the missed years, however, your plan to invest 50 percent of your income may meet your needs - the financial plan will calculate that information for you. You may need to save money in both a retirement account and in a regular taxable account (retirement accounts have limits on contributions). Congratulations again on your new financial focus!
The answer will depend on whether (1) you truly have no savings or (2) you were referring to having no retirement savings but do have other cash savings for an emergency fund. If you truly have no savings, you will likely want to keep the $1,000 available to you in a high-interest savings account in case you have an emergency. It's better to pay for a major car repair with this cash than put it on a credit card. Paying even one month of credit card interest can wipe out an entire year's worth of investment profit. You can use Bankrate.com to browse available interest rates from banks and credit unions across the country. The interest you will earn on a high-interest savings account will be just about the same as investing in low risk bonds.
If you do have cash savings, but are looking to start investing for your retirement, then one option is to begin by setting up an IRA account with a discount broker or directly with a fund company like Fidelity, Vanguard, or one of the many others. At your age, you will want to invest in a more aggressive way to try to build your retirement account more rapidly. If you don't have a financial advisor, a Target Date Fund from Fidelity, Vanguard, or another fund is often a good place to start. Target Date Funds offer you the ability to get a mix of stocks and bonds in one place, and adjust their risk based on your age. Advisors point out many significant issues with Target Date Funds, but with such a small amount the negative impacts will be miniscule. As your account grows in value, however, you may benefit from investing in a more personalized mix of low-cost funds instead of the generic Target Date Fund.
A second option to consider is hiring a fiduciary & fee-only financial planner to help you and your husband with your finances. While many think financial advisers only work with the wealthy, there are many of us who work with average people just like you. As you pointed out, you are starting late in the game, and a full retirement plan is likely going to be helpful in making sure you can retire with the lifestyle you desire.
Additionally, both of the investments you named are very low risk and low return investments. These investments are not appropriate to a goal of rapidly building a retirement fund. A good adviser will help educate you on the risks of investments and will help you be more comfortable with taking on more risk to increase your return. Increasing your expected investment returns from 2% to 6% will likely earn you far more in investment profit than the cost you would pay a good adviser.
And if the adviser is a comprehensive financial planner, and not just an investment manager or an insurance sales rep, then they will help you with other aspects of your financial life as well. This could provide significant other benefits including direct dollar savings and peace of mind through tax planning, insurance optimization, budgeting and debt management, and other aspects of comprehensive financial planning. If you are interested in exploring working with a financial planner, this guide to choosing a financial planner from the non-profit I work with provides a detailed process of how to choose a good adviser and avoid the bad ones.
When seeking investment advice insist on the fiduciary standard of care. Require that your advisor provide you with a written statement of their fiduciary commitment to place your interests first.