Start Investing Today; Your Future Self Might Thank You

New investors often see the initial account funding as a barrier to entry. But Essential Portfolios, an automated investment product from TD Ameritrade Investment Management, LLC, has just dropped its investment minimum to $500.

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5 min read
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Key Takeaways

  • Consider the potential advantages of starting early as you pursue your financial goals
  • You don’t need much to start investing in a managed portfolio
  • Essential Portfolios lowered its investing minimum to $500 for clients who set up automatic recurring deposits

Nearly 40% of millennials claimed they would’ve started investing earlier if not for high investment minimums according to a 2018 investor sentiment survey from TD Ameritrade. A similar number of millennials stated that they know someone who would start investing if not for the required minimum to open a managed portfolio.

Consider this barrier removed.

So What’s Holding You Back?

Once upon a time, new investors often suffered from high barriers of entry in the investing world. If an investor only had a few dollars to invest, most of that money might go toward paying commissions and fees. Also, it might be difficult to purchase some mutual funds due to their investment minimums. But these days, you can open an investment account for a minimum of $500 and begin investing in a diversified and professionally managed portfolio via Essential Portfolios, an automated investing service from TD Ameritrade Investment Management, LLC. The offer is available to clients who agree to set up automatic recurring deposits.

According to Keith Denerstein, director of investment products & guidance at TD Ameritrade, “With Essential Portfolios, we’re empowering investors, regardless of their wealth or income, to enjoy the potential benefits of professional portfolio management. It’s important for us to remain at the forefront of the democratization of investing and break down barriers, so that our clients may work toward their financial goals.”

With the lowered minimum investment barrier, the only decision you face is when to start investing. You see, the earlier you begin investing, the more likely you are to reach your financial goals. Time is a potential opportunity, and the clock is ticking.

Using Time to Your Advantage

Some investors hesitate to jump in, waiting for that ideal moment before a major market upswing. The problem is that we humans are as talented at timing the markets as we are at telling the future.

Consider this: When it comes to long-term investing, your time in the markets may ultimately benefit you more than timing the markets.

“Young investors in particular have one enormous advantage on their side and that’s time. People in their 20s or 30s literally have 40 plus years ahead of them to invest,” said Denerstein.

While starting to invest may be difficult, consider this study below (see figure 1). An investor with the goal of reaching $1 million by age 65, and who starts investing at age 25, needs to contribute $381 each month until age 65. However, if that investor delayed investing, the monthly contribution needed to get to $1 million is dramatically higher the longer it takes to get started. 

FIGURE 1: A STITCH IN TIME. Assuming a constant return of 7% compounded annually, an investor who begins saving at age 25 will need to save $381 per month to have $1 million by age 65. Waiting 10 years to start increases the monthly requirement to $820, and so on. It should be noted, however, that a constant return of 7% annually may set unrealistic expectations for more conservative investors. Data source: Morningstar. For illustrative purposes only. Results will vary as all investing involves risk, fluctuating returns, and the possibility of loss.

“I think this study really shows the role timing can play for an investor. By delaying the start of an investment plan, an investor needs to give up a lot more money out of their paycheck each month to reach the same goal,” said Denerstein. “That additional money each month can be used for virtually anything else, and that has a big impact on a person’s quality of life.”

Of course, in addition to starting early, you also want to make sure you’re invested in the right assets and that your overall portfolio allocation matches your investment style and financial goals. 

Start Early, but Know Where (and How Fast) You’re Going

Before you take off, make sure you know where you’re going, how long it might take, what you’ll need to get there, and how much you’re willing to risk for your desired returns.

In other words, when selecting and allocating investments, balancing your risk and return is critical. It’s also important to diversify into appropriate assets for your financial goals, time horizon, and overall investment style (whether conservative, aggressive, or in between). But it doesn’t end there. You may need to continually monitor, update, or adjust your risk-to-return projections, rebalancing your portfolio when necessary.

Essential Portfolios may be able to help you with many of these activities.

The Potential of Dollar-Cost Averaging over Time

Once you’ve started investing and gotten your portfolio set up, one way to help cultivate portfolio growth is to regularly add to it like clockwork, with a process known as dollar-cost averaging. After all, as you spend a good portion of time working for money, dollar-cost averaging may be one way to help put your money and time to work for you.

Regular contributions and investments are among the best habits an investor can practice. As the old saying goes, “it's your time in the market rather than timing the market." Automatic deductions from your paycheck to your investment account can help you resist the temptation to spend that money elsewhere.

Automating a monthly deposit just might help your investment, however small at the beginning, to potentially compound in the long run. While there are no guarantees, as long as you select the right assets, diversify exposures, and manage your portfolio on a regular basis, you may experience, on average, growth over the long term. 

“The key is really to start forming the habit of investing, even if you have to start with a smaller contribution. That’s OK. You can always adjust the contribution amount in the future, but at least you’re taking steps now to help your future self,” said Denerstein. 

It should be noted, however, that smaller deposits may not always be invested right away, as investing and your portfolio rebalancing occur when certain parameters are triggered (which is designed to keep your portfolio close to its target allocation). 

Getting Down to the Essentials of Portfolio Investing

Let’s recap what we’ve just covered:

  • Time is important in investing. The earlier you start (that is, the more time you have to invest), the more likely you’ll be to reach your long-term financial goals.
  • Higher investment minimums, that may have prevented people from investing earlier in their lives, may be less of a barrier in today’s economic environment.
  • Dollar-cost averaging into a well-diversified portfolio can potentially foster investment growth, and automating a monthly deposit into your portfolio can be one effective method.

When it comes to the essentials of investing, it sure sounds like hard work, and it can be if you do it yourself. But you can also take the professionally managed portfolio route, which offers professional investment services for a very small fee. Essential Portfolios may be one way to pursue your investment goals.

However you decide to begin investing, consider investing as early as possible. If you invest carefully, wisely, and consistently, chances are good that your future self just might thank you for everything you’re doing today.

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Key Takeaways

  • Consider the potential advantages of starting early as you pursue your financial goals
  • You don’t need much to start investing in a managed portfolio
  • Essential Portfolios lowered its investing minimum to $500 for clients who set up automatic recurring deposits
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All investments involve risk, including loss of principal. Past performance does not guarantee future results. There is no assurance that the investment process will consistently lead to successful investing. Asset allocation and diversification do not eliminate the risk of experiencing investment losses.

ETFs can entail risks similar to direct stock ownership, including market, sector, or industry risks. Some ETFs may involve international risk, currency risk, commodity risk, and interest rate risk. Trading prices may not reflect the net asset value of the underlying securities.

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The minimum initial investment for the Essential Portfolios service for a TD Ameritrade Investing Account is: 

i) $500, on the condition that you set up automatic recurring deposits through your TDAIA Account. Recurring deposits are available by electronic bank transfers (ACH).  If recurring deposits cease before reaching a $5,000 balance in your TDAIA Account, we will require you to re-authorize recurring deposits or deposit additional money to bring your account up to $5,000. If these conditions are not met, we reserve the right to discontinue our advisory relationship with you and transfer the securities into a like-titled account with TD Ameritrade; or 

ii) $5,000; or 

iii) $100,000 for corporate/business accounts  

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