HomeInvestingNinja answers.

Ninja answers.

Got an email from a lost soul yesterday and I thought we could help put her on the path to eternal riches. Check it…


I’m a long-time reader of your blog. I want to start a retirement account for myself. I’m a 23 year-old, soon-to-be-married female with a full-time job. My employer does not provide any type of retirement savings of any sort, and I haven’t been making any contributions to my retirement in my lifetime so far. I’m ready to change that.

I’m not sure where to being and am not really that “seasoned” in stocks/bonds/etc. If you have any tips, words of wisdom, or a direction I could head in, I would appreciate it.


Well, first of all I would personally like to thank Rachel McAdams for reading my blog. Loved you in Mean Girls…

Anywhoozle, on to your question. How do you get started with investing when you know nothing about it? Easy. Get out your checkbook. Write a check to [email protected]. Send on over about $10,000. And I’ll mail you back $5,000 in two weeks. BOOM! You just got $5k. Pretty sweet right?

Okay, now it’s time to get serious. Investing, especially for something like retirement, can seem both daunting and unimportant. Stocks, bonds, REITS, Options, blah, blah, blah. Not only is the subject matter rather boring, but retirement is like eleventy bajallion years away, why the heck should we give it any thought? Answer: Because Ninja said so.

Unfortunately Rachel, I know almost nothing about you except that you are 23, employed, and your name is, well… Rachel. Since I don’t know you, I can’t really recommend an investment strategy for you. That said, I can tell you what I do and if you think it sounds sexy, feel free to copy me.

I invest 5% of my gross income to a 401K plan each month because my employer matches that dollar for dollar. Next I take $5,000 of my take home pay each year and invest in a Roth IRA. Roth’s have some pretty epic long term tax advantages for us younger peeps. Since you don’t get an employer match in a 401k plan, I would focus on starting a Roth. I can’t tell you who to open up this account with. Just make sure pick a company (like Vanguard) that won’t fee you to death.

Since I am relatively young (25), I am fairly aggressive in my retirement investing. That is to say, I only invest in the stock market. No bonds for this Ninja. I go the way of Dave Ramsey and invest in a few different mutual funds. 50% of my cash goes to VTSMX (Big US Companies), 25% goes to NAESX (Small-Mid sized US companies), and 25% goes to VGTSX (Foreign Companies). This investment strategy helps diversify my investments across the entire market. If one company collapses (I’m talking about you Radio Shack), it doesn’t really effect me. It’s also important to invest at least a little in international markets. If the US goes to hell in a hand-basket, it will be nice having something that’s still of value.

I don’t like to get super technical when it comes to investing. My mom messes around with individual stocks, options, etc. She’s crazy to me, but it seems to work out just fine for her. A good place to get familiar with solid mutual funds, stocks, etc is MorningStar. They’ll tell ya just about everything you could ever want to know about a specific stock or fund.

Oh man. I’m pooped this was way more “finance” than I am use to in a one blog post. Moral of the story…



  1. My 2 cents –

    1) sign up with Vanguard – they have the lowest costs in the business
    2) buy index funds
    3) invest small amounts often, rather than waiting for large chunks of cash to be available
    4) don’t check the stock market every day- this is a long term deal

    Once you have your account set up and you’ve got automatic investments – go do something fun with your time and attention – check in a couple times a year to rebalance your portfolio if necessary, and to make adjustments (increase your investment as you start to make more money)

    why index funds?

    – everyone and their dog has a “hot stock pick” – and you can totally make money – and lose money- by picking individual stocks. My personal feeling is – play with individual stocks with money you can afford to lose – enjoy the thrill, but it’s not a retirement plan

    – mutual funds are run by people who are trying to convince you that they can “beat the market” – and they charge hefty commissions to do it. Not only do they have to make winning picks, you have to count the large percentage they charge in fees against whatever they may or may not make for you

    – index funds have minimal fees because the decisions on whether to include a particular stock, or whether to buy/sell more are math based – the fund has chosen to mimic an index, and buy/sell choices will be made to keep the index fund in sync with its chosen index – not based on whether the fund manager “believes” in the stock or not.

    perhaps more than 2cents worth, but that’s my strategy in a nutshell 😀

  2. I agree with boomey and most of what Ninja says. If you want to keep things very simple for yourself, just buy the Vanguard Target Retirement Fund for your age and hold it in an after-tax Roth IRA or a tax-deferred traditional IRA. Like all Vanguard funds, this one has very low fees; and because it’s a target fund it will rebalance itself automatically and gradually get more conversative as you grow older. It also provides excellent diversification between US stocks, international stocks, and bonds, while being very aggressive towards stocks at this stage, which is the best strategy when you have a long time horizon. (Contra Mr. Ninja, however, I believe holding at least 10% in bonds is a good idea no matter what your age.) Contribute a set amount to the fund each month and otherwise leave it alone. You can contribute a total of $5000 a year to any combination of IRA accounts.

    There’s a lot more that could be said, but for a good basic introduction, I’d recommend Mike Piper’s “Investing Made Simple,” which will tell you much of what you need to know in 100 pages.

  3. Putting something in a retirement account is better than nothing even if you just stick it in a targeted date retirement fund and forget about it for a few years until you have time to learn more about investing.

    I’d second the recommendations for Vanguard (or Fidelity), a Roth IRA and index funds. If you’re worried about not having liquidity, don’t. You can always pull your contributions to a Roth IRA out without penalty if big changes or emergencies happen in your life. It’s not risk free, but it’s damn close.

  4. Open a Roth IRA and max it out every year. I had an account with Scottrade but they don’t offer a DRIP so I switched to TD Ameritrade (so far have had excellent customer service experiences).

    For investing, I’d consider ETFs instead of mutual funds. Generally they have lower expense ratios (cutting into your profits) and some pay dividends (DRIP them). There’s an ETF for just about any segment of the market these days.

    I’d invest quarterly since transaction fees can cut into your profits if you invest too often.

  5. Id consider going heavier overseas with your investing. America’s not really doing that hot lately. Investors typically have a home bias when investing feeling like they know american companies and investing in them is more idelogically safe. My 2cents.

  6. Don’t forget to look at the *tax* aspect of retirement planning. What makes a Roth IRA different than Plain ol’ IRA? The Roth taxes you up front making it tax free down the road. Plain ol’ IRA pushes your taxes down the road. Each investment has its own way of being taxed and it helps to know how that will work for planning purposes.
    My personal strategy involves a minimal IRA, individual stocks (through DRIPs, dividend paying with the dividends automatically reinvested), CDs, cash in hand and cash in bank. I’m not fond of access to my money being limited by penalties and delayed taxes. I’m also not fond of the possibility of losing my original investment. Granted, that limits my returns.
    But on the other hand, I also have a pension plan I am contributing to. Will it be there in 30 years? Hard to say, but will any of these investments be there in 30 years?

    • All types of investments carry risk. Cash loses value over time due to inflation. Using the CPI as a basis (which may be misleading in itself as it doesn’t cover all expenses, such as gas for your car):

      What cost $50000 in 1990 would cost $82334.60 in 2010.
      Also, if you were to buy exactly the same products in 2010 and 1990,
      they would cost you $50000 and $29269.19 respectively.

      Historically speaking, no type of investment has succeeded as well as equities in earning a rate of return over inflation.

      • Suze Orman recently told one of her viewers just because you have a bad experience investing you should still try again. Maybe I’ll set up a Roth IRA with Vanguard.

  7. Unless, you have a lot of money to invest you will not meet the minimums for a lot of funds. To start, you may have to pick just one. If I could pick only one fund, it would be the total stock market fund. Good luck

    • That’s an advantage of the Vanguard target funds (each of which is actually a fund of funds). With a minimum of $1000, you buy into a target fund composed of three well-diversified funds, with no greater expense ratio than the underlying funds. Total Stock by itself requires a minimum of $3000.

  8. I am also a fan of Vanguard here. You don’t have to just use their mutual funds (which have a fairly high barrier for entry). If you have a brokerage account with them (IRAs count too) you have no transaction costs to invest in their (Vanguard) ETFs. You can even look up and follow one of the “lazy portfolios” when you are getting started.

    I also believe Schwab and Fidelity offer no transaction costs for their ETFs.

    I have also used Sharebuilder, and it was good for what it was, a place to start out. I don’t think I would honestly recommend them now.

  9. I second (third, fourth, fifth?) Vanguard. love! I don’t think anyone mentioned a Target fund (if they did I missed it, sorry) A target fund will rebalance itself every year and get more conservative as you get older. It’s a set it and forget it way to save for retirement.

    I would also go for the Roth.

  10. Rachel,

    Basically, do exactly what Ninja says.

    Vanguard. Roth. Index funds. US big/US small/International. Regular contributions (Automatic transfers are your friend).

    I’d go 34/33/33 myself (as opposed to 50/25/25), but as long as you’re diversified you’re doing it right.

  11. […] at Punch Debt in the Face had a reader question.  How should she start saving for retirement?  Check it out.  You either have some advice or need the advice from the […]

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