Despite the honors and AP classes that I was enrolled in throughout primary, secondary, and undergraduate schooling, I am a slow learner. Like, embarrassingly slow. But, I can say wholeheartedly that I have finally and officially learned that a certificate of deposit at my bank is no place for my Roth IRA. Is that a slow clap I hear? Yeah, I didn’t think so.
Let’s get some backstory here. When I was a wee thing, my dad opened an IRA for me. Every year, he helped me squirrel away a tiny chunk of change. It didn’t amount to much, but by the time I started college, I had a few thousand dollars in an IRA, along with a glimmer of understanding about saving for retirement.
Now that I am a teacher with a pension, I opted to fund a Roth IRA for my retirement savings.* For eight years, I have contributed to my Roth IRA. The past two years, I’ve managed to fully fund it. I sound like a freaking genius, right? Here’s the problem. This whole time, I’ve kept my money in a certificate of deposit earning a whopping 0.5% this past year. I’m losing money if you factor in inflation. I know, I know. But I already said I’m a slow learner.
The reality of it is that I am cautious and anxious to a fault. The amount of time I spend obsessing over decisions would lead a bystander to believe I am determining the course of the free world, not ordering Chinese food takeout. And if I make what I later determine to be the wrong decision, look out. I have been known to second guess myself for days weeks months decades. I’m working on it.
Last year, things changed. I had spent a decent amount of time lurking in the personal finance blogosphere and frantically reading every finance book I could get my hands on at the library. I knew it was an insult to my savings to leave my money earning such a pittance in my bank, but my goodness did I love seeing the words federally-insured next to those dollars. Still, it was an illusion. The only thing I was ensuring was the fact that my money wouldn’t ever amount to much.
So I decided to do an experiment. I would take two-thirds of my Roth IRA and move it into a Target Retirement Fund with Vanguard. I couldn’t bring myself to move it all. What if the market crashed? What if I lost everything? Could I owe the stock market money? I wondered.** At the end of the year, I would compare my experience with Vanguard to my certificate of deposit. Then, I would decide.
November 1, 2015 marked the end of that year. That meant I had a ten-day grace period to make my move. And even though my Vanguard account spent almost equal time in the red and the green, even though the market really did tank, even though I may have called my dad crying a few times, I made the switch this week. Put up or shut up, right? All of my Roth IRA funds are in my Target Retirement Account because I finally learned my lesson.
Here’s the lesson:
I only earned 0.5% interest on my CD last year. That netted me less than 150 measly dollars.
- Switching car insurance companies earns me more money in one phone call.
- Tutoring earns me more money in four hours.
- Couponing saves me more money in two weeks.
- Reselling and decluttering earns me more money in a month.
- Switching out bulbs and air drying my clothes saves me more money in a year.
I know I am young and could invest more aggressively. I know that I could probably find more savings options for teachers that don’t totally suck. I know that people are reading this post right now tut-tutting to themselves, thinking, “Poor girl, doesn’t have a clue.”
I’m not an expert at investing. I’m so far from one that it’s laughable. But I’m investing. My palms might be sweaty, and I might white-knuckle my mouse when I click on my account, but I’m doing it. I hope to put more money in the market by the end of the year, but a Roth IRA that is now more properly invested and has been fully-funded for the past two years seems like a pretty solid place to start.
*Don’t get me started on how bad our 403b sucks. The fees, the limited options, the fact that my district can’t even be bothered to update the info page. Yeeesh.
**Shake your head. I know, what a noob I was.
So Tell Me…What made you so quick to invest? What advice would you give a fledgling investor or someone who hasn’t decided to invest at all yet?
I like investing with Vanguard because the fees are so low and the mutual fund choices are stellar. I invest monthly and basically ignore it after that.
That’s my new strategy: click and forget. When I first started the account, I had a “don’t look” Post-It on my laptop 😉
Congrats on taking the plunge. It may be a little scary to invest, but as you’ve already pointed out, you were taking a lot of inflation risk before by sticking to CDs. Target Date Funds are a good way of getting your feet wet in investing. Just remember this is for the long term and don’t let the ups and downs of the market get you too excited or disappointed. I look at my monthly statements briefly and try to ignore the stock market talking heads and daily movements.
You’re so right about being in it for the long term – I’m trying hard to not obsess.
I waited a long time before I started too. When I was ready, I jumped into a target retirement fund. When I was even more ready, I invested in a total market index fund to compliment my target date fund. And these have been great investments for me!
It’s easy to look back and wish we would have started earlier, but it doesn’t help.
I don’t think we waited too long, we waited until we were ready. Good financial advisors take into account your level of comfort with risk. We increase risk as we are more comfortable and when it is appropriate (years to retirement, etc.).
Now you are ready. Congratulations!
Thank you for the kind words, Marta! We’re definitely ready now. I’m excited to see what else this compels me to try.
I’m definitely more than slow-clapping for you! YAY for making the change! (And don’t worry… I’m a slow learner, too! I hate to admit that I have not been maxing out our Roths for as long as you have…)
Thank you! It’s been quite the ride. My husband never had an IRA anywhere, so when I moved to Vanguard last year, I had him open an account there, too. It was a bit of baptism by fire for him with the market! 😉
Oh my gosh can I just say that “baptism by fire” is the BEST way to describe having just started investing this summer? I was not so wise as to put a “don’t look” Post-It anywhere, so I watched the. whole. thing. To this day, I’m a horrible market-watcher, and I just keep consoling myself that as long as I don’t DO anything about what the market does, I’m still a “passive investor.”
I mean, I’m not even tempted! I know my strategy works long term! But… I still look.
Literally every day.
It’s worth repeating: There is no such thing as perfect. There is certainly no such thing as perfect in PF!
I was never quick to invest, and it took YEARS to feel comfortable investing in anything with any sort of risk whatsoever. I really had to understand that putting money in anything with an interest rate lower than the rate of inflation meant a guaranteed loss. Somehow knowing that made it easier to invest, since I figured even if I lost a little, I was guaranteed to lose money in a savings account or CD.
What matters is your progress and that you’re headed in the right direction! 🙂
We’re just as big of scaredy cats. I know nothing about investing, and something as fueled by optimism and panic as the stock market fills me with terror. I’m going to stick with Vanguard once we’re doing actual investing. In the meantime, I’ll open a Vanguard SEP once I’m able to do more than fully fund the Roth.
So just know that I’ll always be a slower learner than you.
Congrats! I too have a Roth IRA that was originally my father’s idea, and I’ve only recently started figuring out how to use it (i.e. actually, like, putting money into it). I know nothing at all about investing, but I did recently open a Betterment account — it auto-deposits $100 per month from my checking account, so I don’t have to think about it. And the investments are all optimized using some kind of tax-minimizing algorithm (clearly I know exactly what I’m talking about here). So yes: yay, and I’m right there with you, just starting to learn about this stuff. 🙂
I do need to do something with Wealthfront or Betterment. It’s on the to-do list before the year ends. We can learn together!
I’m a sucker for things that are easy. I’ve been a long time investor, but I’m also far from a stock market or investment “expert”. I’ve found the easiest way to invest (generally in targeted retirement and life strategy funds) over the years and simply threw my money into it. They worry about diversification, not me. I mean it was literally brainless for me to invest. All I had to do is send over the money. I never thought about it after that. Thanks Vanguard.
Good on you for starting. Better late than never, and your future self will definitely thank you for deciding to invest. 🙂
I do like the hands off aspect of it. Now I’m just waiting for the make money aspect 😉
Yes, you’ve got this!! What made me quick to invest was the same thing you engaged in – picking up every personal finance book I could, and diving into the personal finance blogosphere. Then learning that the interest rate on standard savings accounts will not even outpace inflation in years to come (essentially, losing value in the money you save – say what?!). This was something that blew my mind. Investing is one of those tedious things that I just knew I would need to get started in, and learn along the way. I may not know everything – but at least I know a few enough things to get started and start capitalizing on that compound interest. What I have learned is that investing can be so psychological! If you can find a way to avoid checking your balances & portfolios often (I know – this one was tough for me too) and recognize that you are in it for the long term strategy, you will fare much better and not panic! Also – recognizing that investing will allow you to accomplish your savings goals faster gives a boost of confidence as well. 🙂
My “don’t look” Post-It seems to be doing the trick for now. I know I shouldn’t be emotional about it. Sit down, buckle up, and go!
I laughed the whole time reading this because it sounds so much like ME! 🙂
I understand this anxiety. I did not open my IRA until last fall. At 31. Was so afraid I’d make the wrong choice, which deferred any good enough choice.