Join Date: Mar 2002
Re: Anyone want to talk stocks and retirement?
Here is what I'd do.
1st things 1st, is any of this money you plan to use in the next 5 years? If so, don't invest it into the market. If this is truely savings for retirement or an extended period goal, then proceed forward. lets say you're planning on a down payment for a house with this money in about 5 years. What happens if the market gets cut in half and rather than having your down payment for your house at that point, you've got half of what you need?
2nd, what kind of benefits does your PERS account give you? is there matching of funds you put in? I'm not familar with it, but sit down with your HR people and find out what kind of benefits you get out of the PERS program. For example, lets say they'll match 50% of whatever you put in up to 4000. Right now you put in $1,200 a year. You'd be passing up another $1200 of "free" 50% returns. I don't care what you invest in, you're not making 50% return over the long run. If Warren Buffett can't generate those type of returns, neither can anyone else (at least anyone honest). If your afraid of sounding stupid to your HR person or whoever handles that for you, get over it. Trust me, you're not the first person that has money put into a 401k, PERS, STRS, etc.. that has no real concept of what happens to it. Educate yourself first and formost on what you are doing today to make sure that is being taken care of.
3rd, I don't know your financial situation, won't pretend to. Don't know your age, debts, job prospects, education, etc... Please don't take this the wrong way, but $100 a month is not very much to save up for your retirment (since your married I'll assume you're not exceptionally young, like college or HS age, at which point saving $100 month would be great) $200 a month really isn't very much either. Now perhaps you can't save much beyond that, like I said I don't know your financial situation, we've all (or at least most of us) have found ourselves in financial situations either currently, in the past or in the future that we wish were better. However, potentially there is room in your budget to save more. A few less trips to the stadium, more brown bagged lunches, a less expensive cell phone plan, etc.... Sadly $100 a month is much better than a large portion of America, so don't feel bad, maybe its all you can do. Maybe you've skimped as much as you reasonable can everywhere else in your life. If that is the case, then I completely commend you for scrapping out $100 each month, b/c certainly that $100 a month could be put towards something "more fun" Anyhoo, my point is take a hard look at your budget, get your wife involved, if you have kids, get them involved as well, you'll be amazed how much motivation kids can provide, how much more willing a kid is to skip that toy he "really" wants when he knows you doing everything you can to provide for your future. Don't cut out everything, you have a life to live, but 99% of americans have something more they find they can live with out (myself included, I should follow my own advice here more carefully)
Now that you've done step 1, 2 & 3 and find that you have more to save outside of your PERS program go to your bank, set up a savings account, even if you have a savings account there already, set up a new one for the purpose of saving up some initial funds. Set aside the $100 dollars a month you think you can afford today (or whatever that sum comes to after steps 1, 2 & 3), having it automatically set aside into this savings account each pay period. After a couple of months, if you haven't felt much pain, try upping your savings an extra $25, $50 $100, or whatever you think the next savings step is logically in your budget and see how much pain that creates. Basically, save until it hurts.
Step 5, if you don't have it right now, create a permanent emergency fund. Dave Ramsey suggests $1000 to his clients as they work their way out of debt. I've seen other places recommend 3-6 months of living expenses (Rent, mortgage, electric bills, food, etc...) Might as well read some Dave Ramsey while you're reading everything else. I don't now if you have credit card debt, or car loans, etc.. and I'll admit that he's "extreme" but you can't go wrong following his advice. As part of step 5, if you have debt outside of your mortgage, I'd recommend getting at least the high interest debt paid off before investing more into the market. The less debt you have, the more financial freedom you have.
Step 6, finally you get to the investing part. I think too many people have skipped the steps above. They may not all apply to you, particually step 5 regarding the debt. I wouldn't start with just 1 Drip or ETF. I'd save up enough to buy a couple of different ones. Perhaps save up for 6 months to get to $600, then invest $200 into 3 different ones. A Coca-Cola or Altria DRiP has been a great long term investment for the last 30+ years, however each has suffered sizeable drops over a 2-3 year period. You don't want to put all your eggs into 1 basket, watch that basket get chopped in half then get discouraged by the end of the year. Having a couple of eggs will give you some diversity and protect you should one sound looking company suddenly reveal some naughty habits of cooking the books. While you take care of steps 1-5, study up and find several eggs that you think you like. You never know, b/w now and the time you get to step 6, that company might just go on sale (ie drop in price despite solid earnings, it happens and give you an opportunity to buy a stock cheaper than its real value)