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In the midst of a recession that is still hurting millions of people, many potential investors don't know what to do to save for their retirement. Whether you've been sitting on the sidelines wondering how to get started or you're knee-deep in a haphazard mishmash of investments that you don't understand, finding the right solution to your concerns is easier than you think.
A recent survey from Bank of America shows that investors of all ages are fretting about their retirement. Older investors face many challenges, ranging from having to support their parents to dealing with layoffs and complicated early retirement offers. Meanwhile, many investors aged 35 or younger don't really know the best way to get started with their investing.
Addressing the specific problems of older investors usually requires an individualized approach, because each person's current situation and future needs are different. But young investors almost universally should make sure they have one thing in their retirement arsenal: a Roth IRA and some simple stocks or funds as investments within it.
Why a Roth?
The long-term benefits of a Roth IRA are unparalleled among retirement investments. Once you make a contribution, all the income from that money grows on a tax-free basis, and as long as you meet the Roth's requirements, you can pull out that money tax-free after you retire.
Under certain circumstances, you can even withdraw the money you put in before you retire at no tax cost or penalty. You won't find that kind of flexibility among traditional IRAs, 401(k)s, or tax-deferred insurance-based investments like annuities.
What to invest in
Opening a Roth is easy, but picking investments might seem harder. If you're just getting started with investing, one way to start is with broad-based exchange-traded funds (ETFs) or mutual funds. The Vanguard Total Stock ETF (NYSE: VTI ) , for instance, gives you low-cost exposure to thousands of U.S. stocks of all sizes and industries. For the money you want to allocate to international stocks, the iShares MSCI EAFE ETF (NYSE: EFA ) invests in old, well-established global markets like Japan and Western Europe. If you want emerging-market exposure, the Vanguard Emerging Market Stock ETF (NYSE: VWO ) owns hundreds of stocks in China, Brazil, India, and a number of other up-and-coming economies.
To take your investing to the next level, you might also want to invest in some individual stocks. Here are some simple investment ideas that can provide both good returns and an introduction to your investing education:
- There's nothing simpler than Coca-Cola's (NYSE: KO ) business model: produce flavored beverages at low cost and then tap into the power of a global brand to sell them at premium prices. That formula has given Coke a 22% profit margin, which is much higher than rival PepsiCo's. And Coke's dividend of $1.76 per share annually will give you a regular reminder of how your investment is paying off.
- Warehouse retailer Costco (Nasdaq: COST ) can't boast anything close to Coke's margins, but it counts on huge volumes to make up the difference. With revenue of $74 billion over the past 12 months, Costco profits from catering to bargain-hungry shoppers seeking to make ends meet in a tough economy.
- You've known about Disney (NYSE: DIS ) since you were a kid, but you might not realize the true reach of its empire. From movies and its ABC and ESPN television units to its landmark resorts, Disney has its fingers in every piece of the entertainment pie. And with more than $3.3 billion in profits in the past year, the company has given shareholders something to celebrate as well.
One fun way to invest is to pick a stock in an industry that interests you. If airplanes have always fascinated you, dig into a company like Boeing (NYSE: BA ) and discover how, despite its overwhelming presence in the commercial aircraft market, its defense-oriented segments bring in just as much revenue for the company, and have been much more profitable recently. Or you can look at airlines like Continental and Delta to figure out whether your favorites fly high when it comes to their financials.
One interesting survey result was that nearly half of affluent individuals work with a financial advisor, and the vast majority of those have been satisfied with the experience. If you're struggling to get on the retirement saving bandwagon, you might benefit from having someone in your corner.
Along those lines, The Motley Fool is working with the fee-only planners of the Garrett Planning Network to offer a limited-time 10% discount to Motley Fool readers. Just click on your state on the Locate an Advisor map, and look for the Fool logo for participating advisors.
Regardless, don't wait to get started. The sooner you begin saving, the better off you'll be at the end of your career.
If international stocks interest you, this one will knock your socks off. Fool contributor Jim Royal has discovered a great global stock with a free kicker.