Mortgage Savings Account
Mortgage Calculator - Savings
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Many people we hear from want desperately to get a mortgage and buy their home but don’t know where to start and how to save. This article illustrates how simple it is to start saving today and the calculator we provided will give you an idea of the rate of return on a particular investments. Before you know it you’ll moved into to your knew home with some money to spare. To calculate your mortgage payments and for the mortgage forumla see the link. It may not sound like much, but you can use it to buy shares in Intel. Or Johnson & Johnson. Or Harley-Davidson (you rebel). And those are just a few of more than 1,000 options available. What if you’ve got $100 — or $1,000? Your options are even greater. |
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We’re not here to tell you where to invest your money. We won’t lay out a handful of stocks on a "buy" list. But what we can tell you is how you can invest your money — the mechanics of investing small, large, and medium amounts of cash. We can even help you choose a broker.
How to invest $20
Let’s start with $20. We’re going to assume that you’ve already paid off any high-interest debt and that you have some money stashed in a safe place (like a savings or money market account) that you can get to quickly in case of an emergency expense. Now you find yourself with a little extra dough, and you want to begin investing for your future.
Is it even worth it to invest such a pittance?
Heck yeah it is! One of the best ways to invest small amounts of money cheaply is through Dividend Reinvestment Plans (DRPs), also known as Drips. They and their cousins, Direct Stock Purchase Plans (DSPs), allow you to bypass brokers (and their commissions) by buying stock directly from the companies or their agents.
More than 1,000 major corporations offer these types of stock plans, many of them free, or with fees low enough to make it worthwhile to invest as little as $20 or $30 at a time. Drips are ideal for those who are starting out with small amounts to invest and want to make frequent purchases (dollar-cost averaging). Once you’re in the plan, you can set up an automatic payment plan, and you don’t even have to buy a full share each time you make a contribution.
Drips may be one of the surest, steadiest ways to build wealth over your lifetime (just make sure you keep good records for tax purposes). For more details on Drips, see "What if I can only invest small amounts of money every month?"
How to invest a couple of hundred bucks
So you’ve weeded out all the wooden nickels from your spare-change jar and have tallied up a few hundred bucks. Instead of blowing it on snack food and Elvis memorabilia, consider investing it in an index fund (the only kind of mutual fund Fools like). An index fund that tracks the S&P 500 is your ticket to an investment that has traditionally returned about 10% per year.
Some index funds require as little as $250 for you to call yourself an owner. This low minimum is usually restricted to IRAs (Individual Retirement Accounts). After your initial investment, you can add as much money as you like, as frequently as you like, with no additional costs or commissions. You purchase index funds directly from mutual fund companies, so there are no commissions to pay to a middleman.
If you have a few hundred dollars to start with, then this is a great, low-cost way to establish an instant, widely diversified (500 companies!) portfolio.
How to invest $500
Once you’re up to $500, your investment options open up a bit more. You can still buy an index fund, and now you’ll have your pick of fund companies that require higher initial investments. This freedom will enable you to shop around for a fund with the lowest expense ratio.
You should also seriously consider opening a discount brokerage account. You’ll want to focus on the account option that best serves your needs; some accounts require a minimum initial deposit, and some don’t. That means you can open up an account with whatever investing money you have available, and start researching and perhaps purchasing individual companies. (Or, if you’re enamoured of index investing, you can easily invest in Spiders, a stock-like investment that mimics the performance of the S&P 500).
The key here is to keep your costs of investing (including brokerage fees) to less than 2% of the transaction value. So if you’re planning to add to your position in stocks a few times a month, a Drip or an index fund may still be the way to go.
How to invest $1,000-plus
What can you do with a grand? Obviously, with $1,000 you can open up a discount brokerage account, but look at the rewards if you can scrape up an additional $1,000 a year to add to your original investment.
Say you’ve got 40 years to retirement. If you start with $1,000 and invest an additional $1,000 each year, and your money earns 10% annually, then when you’re ready to retire at age 65, you’ll have $532,111.07. That seems worth it to us. If you have earned income, you can set up a Roth IRA, and you won’t even pay any taxes on that $532K when you withdraw it. (As always, your mileage may vary.)
Again, even at this level, the key is to keep fees from eating up your earnings. So make sure that the costs of investing (including brokerage commissions, stamps to mail in checks, and books that help you learn to invest) are less than 2% of your account’s overall worth. With small accounts, that can be a challenge but shop around to find the best broker. We hope you’ve enjoyed this article, a big thanks to Mark for the insight. For informtion on a other ways to save with a mortgage and for answers to questions such as: What are reversible mortgages, please see the link.
* For Canadian mortgage rate calculator from TD bank see the link.
*For Uk caluclators and the best mortgage deals in the UK see the link.
Saving for your home mortgage down payment
The truth about savings is that it should be the first “expense” that should be made. Calculate the amount of money that you already have in your bank account that you are willing.
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