Some skeptics malign funds that track the market as a lowbrow way of investing. But over the past 40 years, the S&P is up 1,110% -- meaning a $100 buy-in four decades ago would be valued at $1,210 today. That's pretty powerful. Imagine if you continued to invest across your early years, too, with $100 here and $100 there to supplement the fund.
Fidelity Small Cap Discovery
If you want to get a little more pop in your retirement fund and don't mind taking on a bit more risk or paying a bit more in fees, the Fidelity Small Cap Discovery (FSCRX) fund can be a great choice.
This fund seeks out the top small companies that have big-time potential. Unlike a big fund that contains S&P 500 components, the companies in the fund are stocks you likely haven't heard of -- yet.
The profit potential of this fund is obvious. Think about the money you'd be sitting on if you could have invested in Apple (AAPL, news) or Microsoft (MSFT, news) way back when they were small-time companies. (Microsoft publishes MSN Money.) Of course, some of these small companies will struggle along, and eventually fail.
The expenses are larger on this Fidelity fund because the manager's research and active role should add value that a passive index fund can't match by just moving in lockstep with the market.
But manager Chuck Myers has been running the fund for more than five years -- since March 2006 -- and has a track record to back up his leadership. With the fund's annualized return of more than 6% over the past five years -- while the Dow Jones Industrial Average ($INDU) was shedding nearly 4% -- you can see the power of his strategy.
The downside is that when the Small Cap Discovery Fund falls short, it likely will hurt. And a $2,500 buy-in also puts it out of reach for many investors just out of college. But if you can scrape together the cash and can handle the volatile ride, this fund could help provide a solid start on accumulating a $1 million nest egg.
|Funds for young investors|
|Fund||Category||Minimum initial purchase||Expense ratio||5-year return (annualized)|
|Vanguard Target Retirement 2050 (VFIFX)||Target date||$1,000||0.00%||1.30%|
|Schwab S&P 500 Index (SWPPX)||Large-cap blend||$100||0.09%||0.35%|
|Fidelity Small Cap Discovery (FSCRX)||Small-cap blend||$2,500||1.04%||6.40%|
VIDEO ON MSN MONEY
Let's see, 225 / Month for 60 years? So this article is for all those 20 year olds who want to retire at 80?
Or maybe the $14,500 per year for 30 years is the real target audience of the article? That's what? $1210 a month? So a 35 year old can sock away $1200 each month and retire at 65? Great advice... IF you can afford to save $1200 per month in this economy. If you can do that, then you don't have to worry about retirement because you're already rich...
And how far exactly do we all think a million will get us in 60 years? If the fundamental logic behind this article is so inherently flawed, one must assume the author is a moron and the rest of the article is garbage.
Only real way to get ahead is live below your income level and save the money every month. So if your investments go up, great, if they go down, who cares you don't need the money. You will be buying the investments that month at a lower cost, or on sale. From there hope for the best but plan for the worst.
You people are nuts! the best way is to save your entire pay check , if you have a job.
1. Buy a house and live in it for 3-4 years and make no payments till they throw you out.
2. Have 3-6 kids and get SSI from the government. $300-600 per month
3. send your pay check to foreign country , like mexico.
4. get food stamps.
5. Get free medical program from local hospital.
6. Get SNAP.
7. Get wick
8 Get a free Cell Phone offered by My many Outfits
9. Beg on the street on your days off.
10. File income tax and get credit refund $ 8 to 10 K available to you.
11.Have your old man get in a accident and collect disability, $1400..00 a month social Security
12 Dont ever get married (Collect double.)
13 apply for govenment benefits. more than 1,000 government-funded benefits
14 get student loan and go to school when you are not begging on 5th and Main .
15 Join a church and sit up from with your six kids and wear sloppy clothes , ( before you leave you will have some new clothes)
16 this list goes on and on but the sad fact is I have to pay for you to use it.
Where does this 5% come from. The last 12 years the total return on S&P is 18%, or 1.3% compounded annually. On the Nasdaq, the last 12 years has returned -50%. Run those numbers. See where you get. Don't forget to degrade your investments on the 2% load that 401K investment houses charge and the 3% + inflation is hitting and taste the reality of the new millenium.
We are f*cked. Don't fool yourself on market returns
1. You invest $2,700 per year for 60 years, assuming an annual return of 5%.
The first scenario fits more comfortably in most family budgets, requiring a mere $225 a month. The total capital needed to generate that $1 million nest egg is a mere $162,000
It is all based on 5% return. Please tell where I can invest and earn even 4%
The idea that starting young makes a huge difference, especially with the power of compound interest, is right on. And I'm not concerned with the investment recommendations so much, BUT I have a HUGE issue with the strategy. Yet another example of outdated approaches that we are repeatedly force fed. A 5% annual return over 60 years will absolutely produce the $1M with a $225 monthly/$2700 yearly investment as indicated (can't argue math). Here's the problem though: that's based on the annual return being exactly 5% each and every year for 60 years, which has never happened, so what they are really discussing is an average annual return of 5% over 60 years, which is certainly reasonable. Ok, what's the difference? Plenty.
This is why the strategy is flawed, even though many advisors will use average returns as validation. Here's an example of a hypothetical series of returns: -15%, -3%, +6%, +5%, +12%. Here's another: +12%, +5%, +6%, -3%, -15% (you'll notice it's simply the reverse order). In both cases the "annual return" (really the average annual return) over the five year period is 5%. However, if you invested $2700 a year and got the first set of returns you would have $15,604.68 after 5 years, whereas the second set of returns would produce only $12,133.60 after 5 years. Same 5% return, but very different results showing how much the true annual return and the sequence of the returns over a long period (say 60 years) truly matters. If a ~$3,000 difference isn't a big deal for you then here's another look. Let's use the first 5 yr example since it produced a higher result ( -15%, -3%, +6%, +5%, +12%). If that represented yrs 1-5 and then somehow yrs 5-60 were exactly 5% each yr, you'd end up with $1,001,525. Not too shabby, right? Now let's assume yrs 1-55 were exactly 5% each yr. and -15%, -3%, +6%, +5%, +12% was years 56-60. You would end up with $810,230. With the idea that this is money for your retirement years, ~$200,000 or 20% is a pretty big difference. The point is people need to understand the difference between a truly annual return and an average annual return so they are no longer lulled into a false sense of security. Oh and by the way, no where do they even mention permanent life insurance as a useful tool for young individuals. For a healthy person in their early 20's, they could pay a monthly premium of $225 for 60 years and create over $1M in cash value at their disposal, without market risk along the way. Oh yeah, and whenever that person passes away (remember this is permanent and we all gotta go at some point), a tax-free death benefit is paid to their heirs. Not saying this is a better option, just interesting that it's not even in the conversation while Microsoft published MSN recommends a small cap fund where you might win big if the fund winds up investing in the next .... Microsoft. Hmmm.
During the Nixon Administration the average rate on a savings account was 10 Percent. It lasted for almost 10 years. If you currently have a CD it could be as high as 3 percent for the last 10 years. if you average the 20 year total its a little over 8 Percent. Did anyone do this, or did we all stick our money in the Stock market for a little gamble? If you did almost 85% of investors lost money over the last 25 years. Save your money, don't spend a dime especially on the housing market. The bubble is over and most cant sell their house unless you take a loss.
Stock brokers make money no matter what. They have been trading inside information for as long as the stock market has been open. For the 15% that win, congratulations. For the rest of us.....I guess social security and a mobile home are next.
Wow, lot of negativity. No wonder the stock market is tanking again. I agree, this is a rediculous article though, MSN just loves to print stuff like this because they can't seem to report on real, meaningful news. Just another "try-to-make-them-feel-good" story. I guess it didn't work.
Oh and BTW, I'm 38, started over from scratch 3 years ago after a bankruptcy and a foreclosure. So yes, I know how bad things really are. Point is though I'm on my thrid job since then and I'm investing 20% of my income so I CAN retire someday. Be Strong. Be Positive. The world is indeed what you make of it.
1. You invest $2,700 per year for 60 years, assuming an annual return of 5%.
Wait. So you start saving for your retirement while you are still in the womb??
What moron comes up with this crap?
Hmmm Dow 11,474 in DEC 1999 today 10,733 pretty much stocks are a loser with negative returns.
Plus with only a 5 percent return on investment and real inflation averaging 5 percent for the last thirty years you would merely break even on your money over 30 years. 30 years ago 100,000 was more than 1,000,000 today easy.
All you can hope to do is put back enough to pay for the things S.S. will not pay for.
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