Written by: Paul Werlin, President, Human Capital Resources, Inc.
The law of inertia, also called Newton's first law, states that if a body is at rest or moving at a constant speed in a straight line, it will remain at rest or keep moving in a straight line at constant speed unless it is acted upon by a force. The same principal is at work with many facets of human nature. People tend to keep doing what they’re comfortable doing and avoid uncomfortable situations, doing something different or avoiding making difficult decisions. This couldn’t be truer for investing. According to a recent Gallup Poll, approximately 55% of American households owns stocks, mutual funds or similar investments.
On the surface, not too bad. But only 22% of all households with incomes less than $40,000 hold investments, only 31% of black and 28% of all Hispanic. A US Census study found that a large amount of these investments are in employer sponsored 401k’s. But only 32% of Americans are putting money into their 401k’s, while 59% of all American have access to one. So, many who could invest for retirement, and in many cases have their employer give them “free money” in the form of matching contributions, have taken a pass. Who turns away free money? People who are afraid, people that don’t know, or people that don’t understand.
If you’re someone who hasn’t started a 401k, or taken advantage of the tax benefits of an IRA or other tax-advantaged investment plan, there’s no time like the present to get started. First, if your employer offers a 401k, get the details and sign up. Your HR person/department will guide you thru the process. Contribute what you can. Most people really don’t miss $25, $50 or even more from their paychecks when it’s removed like FICA and other taxes and deductions. And make sure you find out if and how much your employer will match.
Every brokerage firm can help you open an IRA or SEP IRA if you’re self-employed. These firms have lots of information that can help you make good investment selections based on your age, income, risk tolerance, etc. And, in a way, you’re getting Uncle Sam to contribute to your retirement — qualifying contributions reduce your taxable income, so your IRA contribution lowers your tax bill (any your money grows tax free as long as the money is in the IRA). There are actually seven different IRAs so make sure you pick the right one for you. Investor.gov is a good site for information.
But let’s say you just want to get started with a regular investment account. There’s so many choices and sources of information it can be overwhelming. Again, you can go to any of the well-known brokerage firms and open an account or just get information. You can also check out the major mutual fund companies, they too can help you get started. And, if all this seems a little intimidating, you can just ask friends, neighbors, coworkers or relatives for a referral or recommendation. Having an actual advisor to talk to can really help particularly if you don’t want to spend the time and effort doing everything on your own. Here’s a great article to help you find an advisor.
The most important thing is to take that first step. And you don’t need a lot of money. You can get started with as little as $25 in some investment programs. The sooner you get started, the more time your money can grow. And remember, “a journey of a thousand miles starts with the first step.”
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