The Best Roth IRA Advice: Start Now

The investment world is full of advice.  Some of it is quite good, much of it is quite bad, and most of it is somewhere in the middle.  Yes, adding a small allocation of REITs might possibly boost your returns a small amount over the long term.  Ditto for commodities.  Picking just the right bond fund might gain you half of a tenth of a percent and picking a stellar actively-managed fund.  And of course, it goes without saying that devising the perfect asset allocation will improve your results.  But the very best Roth IRA advice is also the simplest, and one that is often overlooked in these types of articles:  start now!  Right this minute!

The Benefit Of Starting Right Away

We’ve all seen those charts those charts comparing Prudent Pete and Shelly Shirker.  Prudent Pete starts saving a small amount for retirement in his early 20′s while Shelly Shirker waits until her early 40′s to start saving a much, much larger amount.  We all know the moral of the story:  Prudent Pete’s portfolio will dwarf Shelly Shirker’s in  retirement even though Shelly saved far more cash out of her own paycheck.

The above illustration is accurate, but it downplays the significance of a single year’s savings in exchange for making some big dramatic point.  What happens if Prudent Pete starts saving for retirement at age 24 instead of age 25?  The difference is staggering.  If Pete maxes out his Roth IRA (which is the 2nd best Roth IRA advice) at age 24, he will retire with an extra $131,440.32 when he retires 41 years later at age 65, assuming an 8% average annual rate of return.  If you’re an optimist and assume 10% annual returns, Pete could end up with as much as $296,619.12 in extra spending money when he retires.  That’s no typo, folks.  One year’s worth of savings could realistically be worth almost $300,000 in retirement.

So go ahead, follow all the other prudent investment advice out there.  Buy index funds, remain broadly diversified, and minimize your investment costs.  Just remember, by far the most intelligent Roth IRA advice you’ll ever follow is to start right now.  And since you can start a Roth IRA with as little as $50, so you’ve got no excuses.