Encouraging The Young To Invest

The Wall Street Journal has an article detailing the recent trend in IRA’s,

This fall, Fidelity Investments launched “SimpleStart IRA,” which is targeted at people ages 21 to 40. The IRA’s offerings are centered on Fidelity life-cycle funds, which grow more conservative as an individual ages. And instead of requiring the usual $2,500 minimum to open a Fidelity account, SimpleStart incorporates an account-building feature that allows investors to direct a set amount to be transferred automatically from a bank account each month. Applying for the IRA just involves choosing a monthly investment and a projected retirement date. SimpleStart is Fidelity’s first IRA product specifically marketed to so-called emerging investors.

In January, T. Rowe Price Group plans to roll out a similar offering called “SmartChoice IRA.” The IRA also offers only funds targeted to specific retirement years, and the account holder is required to choose just one. Among other offerings, E*Trade Financial Corp. rolled out a no-fee, no-minimum IRA in February.

The option will also be there for you to choose between a Roth IRA or Traditional IRA.

Economics With A Face gives an example of how powerful compound interest is over time,

The younger someone starts saving for retirement in these tax free accounts, the more they get to take advantage of the powerful effects of compounding.

For example, if someone puts $2,000 each year under their mattress beginning at the age 20, by the time they reach 65 they will have set aside $90,000.

However, if this same amount is invested in a stock index that averages a 9% return over the same period of time, instead of having $90,000 they will have $1,251,725.52. That’s a difference of $1,161,725.52.

This is a win win situation and one that should be taken advantage of by all, especially the young. When I was growing up, I didn’t even know what these things were, let alone invest in one. As soon as I found out, after college and within the first few days at my new job, I immediately enrolled and notified my family. Everybody should do the same.

Personally, I’d recommend going with T. Rowe Price, they, like Vanguard, have a reputation for being low on fund manager fees.

HatTip: Economics W/ A Face.

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