Wealth Management Tools for the Not-So-Wealthy

“Investing is too stressful.” 

“I don’t need a budget.” 

“What’s the point of only saving a few dollars here and there?” 

Don’t be that person. 

Even the not-so-wealthy person can find opportunities to harness the power of compound interest and create a healthy, substantial portfolio. But building wealth takes time, diligence and one part understanding how to budget and one part knowing where to invest. The tools below can help make this process easy for any rookie or seasoned financial veteran. 

Stay on Top of Your Money

Step one to building wealth: Understand the inflow and outflow of money. Or to use the proper word: budget. 

Budgeting reduces anxiety and increases wealth. By simply understanding how much money comes in, exactly where it needs to be allotted and sticking to those parameters, even those with debt or low salaries can begin to slowly build wealth. 

A variety of budgeting tools exist to help kick-start a budget, including Mint, You Need a Budget, BudgetTracker or just a spreadsheet or Google doc. 

Get Investing

Step two, investing, is an essential part of building wealth. Saving money is important, but keeping those hard-earned dollars under the mattress or in a 0.01 percent savings account isn’t going to beat inflation. Without the help of the stock market, money will quickly lose value. 

Millennials may shy away from the market based on the false assumption they don’t have enough money saved to invest – or due to fear. 

Fortunately, some investing companies and brokerages make it possible to dabble in the market without needing tens of thousands of dollars. Saving $84 to $200 a month could get anyone started in the market. One option even allows you to start with no minimum. Here are three to consider:

The New Players

Betterment

Betterment may be the new kid on the block, but the company’s mission aligns directly with the struggle many millennials (and all generations) face: There just isn’t enough money to pay bills, save for emergencies and invest. 

Instead of setting strict minimums, Betterment offers the ability to contribute only a few dollars a month. However, if a person contributes less than $100 a month, there will be a $3 flat fee. A $100 a month minimum will result in a fee of 0.35 percent of an investor’s average annual balance. A $10,000 minimum balance will be charged 0.25 percent, and a $100,000 minimum balance comes with a 0.15 fee. 

Wealthfront

Unlike Betterment, Wealthfront has a relatively steep minimum for many younger investors. But the company flips the service fees around to benefit those who can only afford to deposit $5,000. 

“We believe everyone deserves sophisticated financial advice. That’s why our minimum account size is only $5,000,” the Wealthfront website states. “We manage your first $10,000 for free and the rest for only 0.25 percent per year. There are no additional fees for our service. No trading commissions. Everything is included in our simple low advisory fee.” 

Acorns

Acorns offers a unique solution to overcoming the mental barrier: “I just don’t have enough money to be investing.” 

Acorns is a smartphone app that helps automate investing. A user links the app to a credit or debit card. The app then rounds up transactions and invests the difference. For example, if you buy a gallon of milk at the grocery store for $3.57, Acorns will round up the transaction to $4 and invest the 43 cents. This process can be set to automate or done by hand. The money will be invested into low-cost exchange-traded funds

Acorns charges $1 a month on accounts under $5,000 and 0.25 percent a year for accounts above $5,000. There are no penalties or fees to withdraw money and no minimum account balance fees. 

The Old Guard

Vanguard, Fidelity and Charles Schwab are well-known and long-standing brokerage firms with strong reputations, low-fees and accounts with low minimum deposits. Here are a few options and their minimum investment requirements:

Vanguard

Target Retirement Fund – $1,000

Vanguard 500 Index Fund Investor Shares (VFINX) – $3,000

Fidelity

Spartan 500 index Fund – Investor Class (FUSEX) – $2,500 

*There is an option for investors without $2,500 to fund the account based on automatic monthly payments. 

Charles Schwab 

Schwab SP 500 Index Fund (SWPPX) – $1,000 (or $100 a month automatic deposit)

Traditional or Roth IRA – $1,000 

Just Get Started

The biggest hurdle to building wealth is inertia. Without budgeting, investing, and using the right financial products, hard-earned money will leak out of bank accounts and lose value due to inflation. Instead, take action and start building wealth today.

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Friday, December 26th, 2014 EN

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