NDSU Extension Service - Ramsey County


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Small Dollars Add Up

Small Dollars Add Up

            Many people think they need a large amount of money to start investing, but this is not true for all investments. Investment vehicles in which you regularly can place small amounts of money either to generate income or increase in value through time are available.

             Investing can be done with as little as $25 (a U.S. savings bond) or $50 (automatic deposits into mutual fund accounts).  A variety of investments (Treasury securities with a $100 minimum purchase), unit investment trusts and many mutual funds are available for an initial outlay of $1,000 or less.

            Once you’ve taken care of “the basics” (for example, reduced household debt, purchased adequate insurance and set aside an emergency reserve), you are ready to explore affordable investment options. This way, your money will earn a higher rate of return through time than a certificate of deposit or passbook savings account to help you achieve important financial goals. Even saving $20 a week for retirement is much better than doing nothing. While this may not sound like a lot of money, through time it really adds up.

            At 5 percent annual real rate of return, an investor of $20/week would have $36,100 more than he or she otherwise would have in 20 years ($65,500 with a 10 percent return), according to the Employee Benefit Research Institute.  In 30 years, the figures for 5 percent and 10 percent returns are $72,600 and $188,200, respectively, and in 40 years, the figures are even more dramatic: $131,900 with a 5 percent return and $506,300 when $20 per week is invested to earn 10 percent. The take-home message: Small-dollar investments matter!

            If saving for retirement is one of your financial goals, a good place to start investing is a

tax-deferred employer retirement plan; for example, 401(k)s and 403(b)s. Many employers require only a minimum deposit amount (for example, $10) per paycheck or a low percentage

(for example, 1 or 2 percent) of pay to enroll. Most employers also will contribute/match an amount that equals a certain percentage of your gross pay. Think of the employer matching contribution as a bonus to your paycheck. Another advantage is that the employee contributions can be deducted from your paycheck before your income tax payments are calculated.



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