A surprising number of people ask me questions like, “Which IRA is better?” or “Which IRA pays more?”
An IRA—like a 401k or any other retirement account—is just an empty bucket. They’re all the same, until you put your investments into it.
So, what are the best investments to pick? This question makes people nervous, but remember, you don’t have to get it right, you have to get started.
Start saving. I can’t stress that enough. Most of the money you’ll have when you retire will be the cash you saved. Do no harm. At first, investing is like learning to play tennis. Amateur tennis players don’t go for the winning shots; they win by avoiding mistakes.
You may not know enough to hit all the right shots when it comes to investing, but you can go further than you think by avoiding mistakes like trading frequently, making investment decisions based on CNBC—and keeping investment costs low.
Pick a target-date fund. These self-contained funds are a good place to start for many investors (and most 401k plans offer them). How to know which target-date fund is best? Pick one that corresponds to your hoped-for retirement date, and with a low expense ratio. The Vanguard target retirement fund for 2040 costs about 0.20% (the industry average is 0.63%).
This advice may sound obvious, it may sound simple, but as Vanguard founder John Bogle famously said, “I won't tell you this is the best investment advice you'll ever get, but the number of pieces of advice that are worse is infinite."
Ready, set... What stops you from opening a retirement account?
Carl Richards, aka "the napkin guy", and father to three daughters and one son, is renowned for his weekly sketches on the NY Times Bucks Blog and is now a DailyWorth contributor.