After you have been at it for a long enough time, investing seems somewhat like golf — you play the ball as it lies. You have your funds invested in certain places in certain ways. When it comes to switching your money up among different account types or among investments inside brokerage accounts, there is only so much you can really do.
So it is important to get things right from the start. If I were just starting out again in investing right now, I know what I would do to start again from scratch. I would invest my first $5,000 inside a Roth IRA by getting into the Invesco S&P 500 Equally Weight ETF, and set my dividends to be reinvested. It’s a strategy that is simple and powerful.
Why a Roth IRA?
In many respects, Roth IRAs are the top retirement accounts. Key benefits of these accounts that make them so powerful include:
- Money inside your Roth IRA can grow tax free
- You never need to withdraw the money from your own Roth IRA within your own lifetime
- You can access your funds without no penalties or taxes
- With a good annual contribution limit, your Roth IRA can lead you to being a millionaire over time
Indeed, these factors make Roth IRAs very powerful and they should be a high priority investment for you. About the only reasons to put money elsewhere first would be:
- Taking advantage of your employeer’s 401(k) match.
- If you don’t have earned income (since Roth IRAs must be funded by earned income).
- If you earned too much to directly contribute — in this case, a backdoor could be available.
Why invest the $5K in Invesco S&P 500 Equal Weight ETF?
Index-based investing has routinely trounced the returns of most active managed funds. There are structural reasons for this — most notably, the costs and fees linked with managing a fund make it harder for those sorts of funds to bring in better profits.
The current issue with normal S&P 500 funds, however, is that these funds are market-cap weighted. As a result, the biggest companies in the index have a larger share of the index. Within the S&P 500, the top 10 firms represent over a quarter of the whole index, and those companies are mostly tech companies.
There is nothing wrong with buying technology companies, but if a goal of index investing is to get exposure to a huge swath of the economy, the Invesco S&P 500 Equal Weight ETF does this even better. Both a market cap weighted S&P 500 fund and an equal weighted S&P 500 fund invest in the same companies, but the better balance of the equal weight fund gives it an edge when it comes to diversification.
With only a 0.2% annual fee and almost zerp turnover, the Invesco S&P 500 Equally Weight ETF has a good combo of low fees and low churn that gives index funds their edge. All in all, there are lots of reasons to think the ETF has what you need for a great first investment in any investor’s portfolio.
Author: Scott Dowdy