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You've read the stories about the dearth of "retail investors" out there as stock market volume remains thin and mutual funds keep seeing money flow out.

Many companies have also cut back on their 401k and other retirement benefits, and a number of Americans are cracking open their nest eggs and borrowing against retirement to keep afloat now.

It's tough out there. And while we all know we need to invest for retirement, it's sometimes hard to believe it's worth the trouble.

But as legend has it, the great mind of Albert Einstein believed that the most powerful force in the universe was compound interest -- the process of putting a little money away now to become a little more tomorrow, and a little more the day after that, in time growing to a very substantial sum.

If you think that retirement is out of reach or that investing is just too expensive, think again. It doesn't take a ton of seed capital to get started -- or to get back in. And the sooner you get going, the longer you have to compound your interest and supercharge your returns.

In short, it's not how much money you have now but how much you'll have with time. So get started!

Here's how you can begin building a successful retirement in five easy steps. And the first step can be as simple as socking away $1 a day.

Step 1: Save $1 a day for a year

If you can't do this, you're in serious trouble -- and not just as an investor or as a future retiree. While seemingly meaningless on the surface, this simple act has a philosophical value:

  • It shows discipline. Making a concerted effort to save daily is a good lesson to learn, and a good thing to prove you can do.
  • It's a long-term goal. Saving $1 a day is important because it proves you have the ability to keep your eyes on the prize, even if the going is slow.
  • It builds confidence. This is a goal that you can easily achieve, so there's no risk of being disappointed or feeling like you're in over your head. Getting to $365 in 365 days will give you confidence to save and invest more going forward.


But don't think you have to wait a full year before you can get started. Simply do an Internet search for "no minimum broker" or "zero minimum broker" and you'll find a host of online investing services that allow you to put even small amounts of cash to work. Depending on the offers at the time and the provider, you may even get free trades -- meaning you literally have no barriers to investing even a small sum.

That means you can start buying stocks and funds pretty quickly. Of course, unless you want a $1 stock, you might have to wait a few weeks to save up enough money -- and if it's a stock like Apple (AAPL), you'll be waiting almost two years to gather enough cash for just a single share. But the good news is that you can buy stock in as little as one-share lots once you're ready. That could mean six $60 stocks your first year or 12 $30 stocks -- it depends on your strategy. But you have plenty of investments to choose from.

Step 2: Identify your 'flavor' of investing

While you are gathering your dollars in your piggy bank, you should be proactive about finding your first investment.

There are a few core types of investors, and you're probably most comfortable in one of these categories. So as you put your money to work, you should explore exactly what you want to do with it -- and equally important, what your risk tolerance is.

  • Capital preservation: Is avoiding losses as important to you as tapping into profits? Than you should consider boning on up investments that focus on capital preservation -- whether they be certificates of deposit or ultralow-risk investments like U.S. Treasury bonds. The tradeoff: generally lower returns.
  • Income: Do you want to do more to grow your money, but in a low-risk way? Then you're probably an income investor. That means you put your money in investments like bonds or dividend stocks, not with the expectation of big jumps in the prices of the assets but to get a nice stream of income from those investments in the form of regular distributions. Income plays include dividend stocks like Procter & Gamble (PG), dividend stock funds such as the SPDR S&P Dividend (SDY) exchange-traded fund or bond mutual funds like the world-renowned Pimco Total Return (PTTRX) fund.
  • Value: Are you looking for strong investments that remain relatively stable over the long term but that might be undervalued with room to run based on their long-term potential? Then you're what we call a "value" investor who looks for bargains. This is the school of investing made famous by Warren Buffett and Benjamin Graham before him. Look for the word "value" in mutual funds or ETFs to find the ones that use this strategy.
  • Growth: Are you looking for, pardon the overused marketing phrase, "the next Apple," a stock that will soar in price and deliver significant gains to your portfolio? Are you prepared to swing for the fences even if it means you may strike out? If so, you're a growth investor. Look for the word "growth" in mutual funds or ETFs that have this strategy.
  • Self-starter: Do you dream of being a cook and consider an expensive kitchen gadget a good investment? Do you want to learn new skills and start a second career, and think it's worthwhile to invest in your education via seminars or part-time courses? These are unconventional forms of investing, but they're no less powerful. Tapping into your personal potential is sometimes more of a moneymaker than anything else.


Decide out what kind of investor you are as you do your research. Then, when you find a few prospective investments, you will know how much you'll need (and how long it will take to save) in order to make that first move.

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Step 3: Create an action plan -- and practice it

You may be inclined to just grab the $30 or $60 necessary to make your stock purchase on Day One. But remember, the discipline of saving is important -- and equally important is the time you're buying yourself. Because while you're saving up, you can practice your investing in a no-risk environment on paper.

Let's say you want to start investing in growth stocks. Start by scouring the Web for as many resources as you can on the topic and practice some armchair fundamental analysis of stocks -- Wall Street-speak for measuring sales growth and earnings growth. Familiarize yourself with the big players and the big news that's out there.

And most importantly, start investing on paper. If you like a stock, write down the current price and how much you would invest in the stock if you were really trading. Check in on it two or three times a month to see how your idea shakes out over the next year. This is a much cheaper way to learn the market than by making a bad buy.

Over time, you will become conversant in the issues of the day and will have some "real" investing experience based on your paper trading.

Step 4: Don't do too much

Here's the hardest part. If you see big success with your investment plan, chances are you'll be eager to do more -- buy more stocks or mutual funds, and get aggressive about your retirement. That's only natural, and, of course, I don't think you'll be investing just $1 a day for long.

But remember that this is a long-term game. As the saying goes, "don't try to eat the elephant in one bite."

Equally troublesome is the pitfall of letting short-term setbacks cause you to panic. You may see a stock drop and sell too soon, or you may pull your money out of a mutual fund too early and face a penalty.

Relax. Slow and steady wins the race.

The fact is that with a small amount of money, trading often will eat up your nest egg with fees. As I mentioned earlier, sometimes you can find brokers that offer a handful of free trades when you first sign up, or cut-rate offers for $1 trades -- shop around for the best deal on your brokerage account. But fees always matter, and even more so when you don't have much cash to play with.

Also, time and time again investors who try to "time the market" get burned. Aside from owning a functioning crystal ball, there is no way to know for sure when it is safe or when it is unsafe -- and you do as much harm as good trying to anticipate the big moves of the market and the economy.

Staying the course is key, not just as a way to learn the market and practice discipline, but also to reduce your costs in the long run.

Step 5: Do it all over again

If you can manage to get to the other side of this 365-day regimen, you will have taken some very important steps in securing your financial future. But it's a long road to retirement, so it's time to do it all over again!

Remember, the idea of compound interest involves a little bit of money here and there that grows modestly over time, with your reinvestment of those gains continuing to snowball until you retire.

Don't buy into this scheme? Well consider this: If you get just a 3% return on your initial investment and invest an additional $365 each year, 30 years down the road you will have a nest egg of more than $18,700!

That's not enough to buy your own private island -- and as I said, you'll want to ramp things up as you go along --but it's very impressive on just $1 a day. Especially when you consider that if you just put that cash under your mattress without the benefit of compound interest, you'd have only $10,950 (that's $365 multiplied by 30 years). You're giving up a 70% return on your investment of an amount most of us would hardly notice.

So get started today, saving a little at a time. It all adds up big in the long run.

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