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December 28, 2004
Who Wants To Be A Millionaire?
The Wall Street Journal had an article today on how financial firms are beginning to focus their marketing efforts on younger investors.
This fall, Fidelity Investments launched "SimpleStart IRA," which is targeted at people ages 21 to 40. The IRA's offerings are centered on Fidelity life-cycle funds, which grow more conservative as an individual ages. And instead of requiring the usual $2,500 minimum to open a Fidelity account, SimpleStart incorporates an account-building feature that allows investors to direct a set amount to be transferred automatically from a bank account each month. Applying for the IRA just involves choosing a monthly investment and a projected retirement date. SimpleStart is Fidelity's first IRA product specifically marketed to so-called emerging investors.
In January, T. Rowe Price Group plans to roll out a similar offering called "SmartChoice IRA." The IRA also offers only funds targeted to specific retirement years, and the account holder is required to choose just one. Among other offerings, E*Trade Financial Corp. rolled out a no-fee, no-minimum IRA in February.
The companies are looking to make it easier for young investors to open IRAs by simplifying the process. The new IRAs from Fidelity and T. Rowe Price, for instance, basically involve picking one life-cycle fund based on a specific retirement date. With such funds, young investors don't have to worry about asset allocations or rebalancing their investment choices because the funds' investments automatically grow more conservative over time -- for instance, moving toward more bond holdings than stocks as an individual gets closer to retirement.
What individuals at the younger end of the retirement market "needed was a simple way to get started and an affordable option," says Sean Belka, senior vice president of personal investments at Fidelity.
The younger someone starts saving for retirement in these tax free accounts, the more they get to take advantage of the powerful effects of compounding.
For example, if someone puts $2,000 each year under their mattress beginning at the age 20, by the time they reach 65 they will have set aside $90,000.
However, if this same amount is invested in a stock index that averages a 9% return over the same period of time, instead of having $90,000 they will have $1,251,725.52. That's a difference of $1,161,725.52.
So the lesson is simple: save early and often. It's worth it in the long run.
Posted by Peter Mork at December 28, 2004 11:00 PM
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The Wall Street Journal has an article detailing the recent trend in IRA's,
This fall, Fidelity Investments launched "SimpleStart IRA," which is targeted at people ages 21 to 40. The IRA's offerings are centered on Fidelity life-cycle funds, whi... [Read More]
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