Investing for Families-How to Find $1,000 and Invest It

The following article is by Barbara Friedberg of BarbaraFriedbergPersonalFinance.com. Please see her author bio at the end of the article.

Don’t have extra money to invest?

Not crazy about researching investments?

Understand that you need to invest to grow your money for the future.

Unless you have been living in a cave, you realize that to have more money for long term goals, college, retirement, down payment for a home, you must INVEST. Some of you out there don’t have extra time to research investments and don’t have extra cash either.

Here’s your solution.

Step 1: Find an extra $1,000
Commit to trying one or a combination of these strategies for a couple of months and see how the savings add up. Take the savings and put it in a special “INVESTMENT ENVELOPE” or savings account.

1. Spend no money on snacks or lunches out. Bring snacks along when you go on errands. In this article I divulge how I easily save $400 per year.
2. Say “no” to the kids for those little toys that wind up in a pile on the floor. Enlist their help in saving money.
3. Save gas by cutting back on driving; car pool, bunch errands, and walk.
4. Cut back on groceries by eating vegetarian for a few meals per week.
5. Put off discretionary spending for a while.
6. Make family activities low cost; games, hikes, apple picking, $1 movies, use your imagination.
7. Work some overtime.
8. Sell some stuff on eBay or Craigslist.
9. Take on a part time job over the holidays.
10. Advertise in the community newspaper and do some odd jobs.
11. What else can you think of?

Step 2: Send your $1,000 to Charles Schwab and open an investment account.

Step 3: Get a Diversified Investment Portfolio for $1,000
The November, 2010 issue of Money Magazine had this great idea for a $1,000 diversified portfolio from Schwab. With the $1,000 you can open an account and buy ETFs (exchange traded funds) without ANY commission. This is the portfolio they recommended:
· $225-Schwab U.S. Small-Cap ETF (SCHA)
· $225-Schwab International Equity ETF (SCHF)
· $350-Schwab U.S. Large-Cap ETF (SCHX)
· $200-Schwab U.S. TIPs ETF (SCHP)

How Much Will You Have in the Future?
Let’s say you can do this twice per year, (for a total of $2,000 each year) and leave the money untouched for 35 years. If historical returns hold, how much will you have at the end of 35 years?

Long-term Historical Return Assumptions from 1926-2005:
· 10%-Large Cap U.S. Stocks
· 12%-Small Cap U.S. Stocks
· 9%-Large Cap International Stocks
· 3.7%-U.S. Treasury Bills
From Investments (7th ed.), Bodie, Kane, Marcus, p. 146, McGraw Hill Irwin

Your $70,000 investment at 9% return per year yields $461,870 after 35 years!

What if you believe historical returns won’t hold and future returns will decline, as I do. Likely, if U.S. growth slows, so will future returns on stocks.

So, consider the value of your investments after 35 years with an average annual return of 7%.
Your $70,000 investment at a 7% return per year yields $288,937 after 35 years! Not too bad?

SUMMARY
Are these small changes worth an extra $288,937 dollars when you approach retirement? This money does not include any workplace retirement savings or social security you may accrue. Even if you can’t manage the entire $2,000 per year NOW, start with less and work towards increasing the amount over time.
Investing does not need to be difficult or scary. Just get started.

Caveat: This article is for information purposes only and may not be appropriate for your individual situation.

Barbara Friedberg is editor-in-chief of Barbara Friedberg Personal Finance as well as a portfolio manager and MBA professor. She has an MBA in finance, BS in economics, and MS in Counseling. Learn to GET WEALTHY in MONEY & LFE with Barb. Pick up her FREE eBook, 20 Minute Guide to Investing at the website.

3 comments

  1. katea says:

    Superb blog post, I have book marked this internet site so ideally I’ll see much more on this subject in the foreseeable future!

  2. Kris says:

    Ahh, just be careful if you can’t afford to lose that $1k, or you might need it in the near future. Might not sound like a lot of $ to some people, but its a lot to risk in some cases.

  3. Barb Friedberg says:

    @Kris-You are absolutely right! Investing is only for money you will not need for 5-10 years minimum! In the short term investments are extremely volatile. Thanks for bringing up that crucial point. @Katea- Thank you for the response. Stop by my site and pick up my FREE eBook, 20 Minute Guide to Investing. It’s a fun read!

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