- I know I should start saving for retirement sooner than later.
My question is, should I dive in ASAP or spend a couple years saving
and learning about the different accounts available? - Dwight
Hi Dwight - Start now! Your question is valid, and you should
always read up on your investment options to decide which makes
the most sense. However, you can't replace time, and the more time
you give your money, the more work it will do on its own.
The best thing your retirement account will do is earn money by
snowballing. If your 401(k) or IRA didn't produce returns and compound
interest, you'd be better off burying cash in your backyard. As
it is, even though the total amount in your account will fluctuate,
the earnings always have the capacity to produce more than what
you put in.
The goal is to get your account to a threshold where the annual
returns created by the money you've already invested will outweigh
your annual contributions. You can put $5,500 into an IRA each year,
and if you do that every year for a couple decades, the money generated
by your account will eventually go well above $5,500 annually.
Your hangup is understandable; you don't want to invest money each
year into an account you don't understand. If the money doesn't
compound and grow, you're back to wishing you'd buried money in
Fortunately, there are a lot of options for stable investments.
You can open an IRA online through Betterment with minimal fees
and above-average returns. There are plenty of other online providers
with fairly good rates. Read reviews, talk to friends, don't go
in totally blind, and you'll be making good use of your money.
Remember you can always adjust your account or move your money later
on. There are penalties for closing accounts and withdrawing funds,
but if you move an IRA or a 401(k) from one bank to another, you
won't get hit with a big fee. The fear of not understanding your
investment, while valid, should not stop you from putting money
into a retirement account ASAP.
A final point: you aren't going to really learn about investing
until you start. If your goal is to know exactly how retirement
accounts work, you need to have money in one so you can watch the
market in action. Postponing your contributions will not help your
mission to learn, it will do the opposite.
Contribute early and often, Dwight. You'll get educated as you go,
and you'll give your money the best chance to grow.