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Too many people never make the first step toward making better investments because they think they don't have enough money. But you don't have to be a millionaire in order to get off to the right start with your portfolio -- and with the right combination of smarts and discipline, you might well become a millionaire before everything's said and done.

The smart start
Last week, I got an email from a reader named Javier asking for some help. Before joining the Fool, he hadn't had any investing experience and didn't understand the importance of saving for the future. But after learning about investing over the past three years, Javier spoke to his 19-year-old son about getting an early start on his retirement. Now that his son has saved $1,000 from his summer job, he's decided to open a Roth IRA and would like to know how best to invest it.

Before getting to investment suggestions, I want to point out what an exceptional move Javier's son has made. It wouldn't even occur to most of us to think about retirement at a time when we haven't even started a full-time career yet. Yet by starting early, Javier's son has a chance to let his $1,000 grow for 45 years or longer before he needs it in retirement, making his eventual nest egg that much bigger. And by using a Roth IRA, he'll enjoy tax-free growth for as long as the money stays in his account -- and he won't have to pay tax on withdrawals when he needs to use it.

Where to invest
At the simplest level, if you want a no-hassle, one-stop place to put your money, I'd suggest looking at target retirement mutual funds. These funds invest aggressively early in your career but then gradually tone down their stock exposure as you get closer to retirement.

For instance, the T. Rowe Price Retirement 2055 Fund (TRRNX) is designed for people who expect to retire around 2055, and it has 88% invested in stocks, 8% in bonds, and 4% in cash. And for an IRA, it has a minimum investment of just $1,000.

Turn up the volume with ETFs
A target fund is great if you want a mostly hands-off approach, but if you want to be more active, you'll want a brokerage account -- and ideally one with access to commission-free ETFs. Fortunately, many brokers offer fee-free ETFs with relatively low or no minimums. Schwab, for instance, has a $1,000 minimum to open an account, but it will waive that minimum if you commit to investing $100 monthly. Vanguard doesn't have a minimum listed on its website, although it charges $20 per year if you don't have at least $50,000 in your account.

With ETFs, putting together a portfolio is easy. For instance, a young investor might create an aggressively diversified stock portfolio simply by splitting his money between the U.S.-centered Vanguard Total Stock Market (NYSE: VTI  ) , Vanguard Emerging Markets Stock (NYSE: VWO  ) for emerging-economy exposure, and one of Vanguard's several international ETFs to cover the rest of the world. As you get older, incorporating a higher-income approach with Vanguard Dividend Appreciation (NYSE: VIG  ) and Vanguard Total Bond (NYSE: BND  ) will round out your portfolio.

Each broker that offers commission-free ETFs has its own lineup of investments to choose from, so before you open an account, make sure the ETFs you want are available.

Get some stocks
ETFs are useful, but for the best investing experience, there's no substitute for individual stocks. I'd suggest taking a close look at three potential starter stocks: McDonald's (NYSE: MCD  ) , Wal-Mart (NYSE: WMT  ) , and Nike (NYSE: NKE  ) . Each of these stocks is dominant in its industry. They won't offer quite as much growth potential as smaller companies, but they all pay dividends, and they'll be more stable than taking a flyer on a small-cap stock. None of them has a ridiculously expensive valuation right now. And both Wal-Mart and McDonald's managed to make money for shareholders during 2008, one of the market's worst years in history. They're not a sure thing going forward, but young investors are familiar with their products, making it easier to use them as a learning opportunity.

There's nothing more satisfying than making your first investment. I wish Javier's son the best of luck, along with those of you who plan to join him in taking the crucial first step toward financial security.

ETFs aren't just useful -- they can be highly profitable too. Click here to read The Motley Fool's special report on ETFs and find out which ones will soar as the economy recovers.

Tune in every Monday and Wednesday for Dan's columns on retirement, investing, and personal finance.

Fool contributor Dan Caplinger will always remember his first investment. He owns shares of Vanguard Emerging Markets Stock and Dividend Appreciation. Wal-Mart is a Motley Fool Inside Value recommendation and a Motley Fool Global Gains choice. Schwab and Nike are Motley Fool Stock Advisor picks. The Fool owns shares of Vanguard Emerging Markets Stock ETF and Wal-Mart. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets you off on the right foot.

Read/Post Comments (8) | Recommend This Article (19)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 02, 2011, at 4:45 PM, prginww wrote:

    FYI: Vanguard will waive the $20 annual fee if you agree to have all correspondence/notices transmitted electronically.


  • Report this Comment On February 03, 2011, at 11:50 AM, prginww wrote:

    The Fool was started on the premise of investing for ourselves and not relying on "the Wise" at some fund, so I'm definitely on board with the suggestion for an individual company.

    Rather than hopping on board some plodding behemoth like Wal Mart though, I'd suggest a strong but smaller company that is likely to offer multi-bagger growth in upcoming years...(recognizing that nobody has to hold any particular stock until if the growth slows in a decade, its OK to buy something else).

    What to buy?

    What about Priceline, up 1700%+ since the original Stock Advisor rec...with years of growth ahead?

    Or AMZN, up 1000%+, again with years of growth ahead?

    Or AAPL? Hard to say how long it'll keep growing, but it's a cash machine with years of great growth ahead.

    There are many other attractive choices, but my point is if you have a long road to retirement, pick some substantial, reliable growth instead of plodding along with the masses. Yes, I know some folks are more comfortable with plodding, but its even more comfortable to fund a generous retirement.

  • Report this Comment On February 03, 2011, at 12:46 PM, prginww wrote:


    The only problem with the stocks you listed is that they are expensive based on the share price. If someone only has $1,000 to invest, they can only buy 2 shares of Priceline, roughly 5 shares of AMZN and 2 shares of AAPL. That makes it very hard to earn a decent profit after paying commissions. I think a stock giving at least some dividend and cheaper by the share price with room to grow would be better.

    Maybe something like T, INTC, GE, HAS?

  • Report this Comment On February 04, 2011, at 9:59 AM, prginww wrote:

    You could also buy shares of Ford. They seem to be on a clearance sale at the moment.

  • Report this Comment On February 05, 2011, at 3:17 PM, prginww wrote:

    Seconding mattsmith comments, but also add another concern.

    One experience a new investor absolutely doesn't need is putting money down on a high-fligher that doesn't pan out.

    We can talk about what investing in AMZN, GOOG and AAPL 12 years ago would have performed, but you also need to consider the how many of those exciting companies became roadkill (Netscape...)

    $1000 doesn't give you much room for diversification, and no room for a mistake.

    I'm pretty sure the first MF book recommended that new investors pick an index fund to start with. Premise being that all the mutual funds were spending your money trying to beat the indices and half of them had below average returns, so why not just cost average and make a regular investment in the index?

    That's always my first recommendation, mainly because I don't want a family member or friend getting on my case if I'm wrong about a particular stock..

  • Report this Comment On February 10, 2011, at 12:18 PM, prginww wrote:

    Why do I only see comments about VANGUARD? Investment co of America Fund looks like one of the best places for retirement money!

  • Report this Comment On March 26, 2011, at 9:43 PM, prginww wrote:

    What do you cyberfolks think abt penny stocks. I am not a current investor but am considering online trdg in the near future

  • Report this Comment On November 29, 2011, at 2:11 AM, prginww wrote:

    Shares are great for invest but... the higher profits I can achieve on forex. I opened recently account using website :

    I connected 3 traders and earned almost 40% (from 500 $ at the beginning ) in 3 months. And for me it's not a hazard because I not where is the risk and I can control it. So in my opinion shares are good for diversification when people have enough money. With 1 000 $ my direction will be Forex.

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