Once you’ve opened your account, transfer in the amount of money you are ready to invest. Check our calculator to compare initial investment amounts. Meanwhile, you can decide what you want to invest in. Mutual funds and ETFs are popular choices for retirement accounts, as they are more diversified and seen as generally more stable than investing in an individual stock.
When choosing an investment, be aware of fees and account minimums. These are the three ways that fees are typically worded:
- Exp Ratio – The average exp ratio for mutual funds is 1%, which translates to $10 in annual fees for every $1,000 you invest. Index funds and ETFs average about .5%, which is $5 in annual fees per $1,000 invested. That may seem small, but a higher percentage could eat up thousands in the long run. The lower the percentage, the less you will lose to fees.
- Loads – Although you can’t avoid exp ratio fees altogether, you can avoid paying front-load, back-end load, or any type of load fee by sniffing them out. Loads are basically sales charges that get pocketed by the broker and co. You may be able to filter out any load fund results if you do a search for a mutual fund using your broker’s mutual fund screener.
- Transaction fee – There are thousands of mutual funds to choose from, and many that do not require a transaction fee. This is especially important if you plan on doing frequent deposits in smaller amounts, rather than one big deposit annually.
You can narrow it down based on fees, size/type of the companies represented in the fund (called “holdings”) and how socially responsible the funds are. If you have a financial advisor, ask for recommendations.
Once you’ve made your first deposit, you can keep investing more into this fund in additional deposits. One way to stay on track is by scheduling monthly or annual reminders and auto-deposits through your brokerage.
Woohoo! You could be on your way to becoming a millionaire.