Taylor Kovar

Hey Taylor - I know I should start saving for retirement sooner than later. My question is, should I dive in ASAP or spend a couple years saving and learning about the different accounts available?

Hey Dwight - Start now! Your question is valid, and you should always read up on your investment options to decide which makes the most sense. However, you can’t replace time, and the more time you give your money, the more work it will do on its own. 

The best thing your retirement account will do is earn money by snowballing. If your 401(k) or IRA didn’t produce returns and compound interest, you’d be better off burying cash in your backyard. As it is, even though the total amount in your account will fluctuate, the earnings always have the capacity to produce more than what you put in. 

The goal is to get your account to a threshold where the annual returns created by the money you’ve already invested will outweigh your annual contributions. You can put $5,500 into an IRA each year, and if you do that every year for a couple decades, the money generated by your account will eventually go well above $5,500 annually. 

Your hangup is understandable; you don’t want to invest money each year into an account you don’t understand. If the money doesn’t compound and grow, you’re back to wishing you’d buried money in the yard. 

Fortunately, there are a lot of options for stable investments. You can open an IRA online through Betterment with minimal fees and above-average returns. There are plenty of other online providers with fairly good rates. Read reviews, talk to friends, don’t go in totally blind, and you’ll be making good use of your money. 

Remember you can always adjust your account or move your money later on. There are penalties for closing accounts and withdrawing funds, but if you move an IRA or a 401(k) from one bank to another, you won’t get hit with a big fee. The fear of not understanding your investment, while valid, should not stop you from putting money into a retirement account ASAP. 

A final point: you aren’t going to really learn about investing until you start. If your goal is to know exactly how retirement accounts work, you need to have money in one so you can watch the market in action. Postponing your contributions will not help your mission to learn, it will do the opposite. 

Contribute early and often, Dwight. You’ll get educated as you go, and you’ll give your money the best chance to grow.

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