Encourage young adults to start saving early

What if your young adult child is ready to invest for retirement but doesn’t have access to a workplace plan?

That was the concern of one Maryland parent who wrote to me:

“After reading about the need to start a retirement account, I called our broker about opening Roth IRAs for each of our three grown kids. The broker told me her firm didn’t want accounts that were less than $10,000, but she could make an exception for me since I had my own accounts. I told her I didn’t know what the kids might put in, perhaps $50 a month.”

The broker then told her something that just steams me:

“Oh, it wouldn’t be worth it, because that’s only $600 a year and the fees would eat it up.”

The concerned parent wanted to know, “Does this sound right to you? How is anyone supposed to get started small if it’s not worth it?”

I relayed her story to Ernest Burley, a certified financial planner, and Deborah Owens, the author of “A Purse of Your Own.”

They both were aghast at the broker’s discouragement.

“Sometimes brokerage firms have account minimums and charge exorbitant annual maintenance fees if your assets are below a certain level,” Owens said. “The least [the broker] could have done was refer her to another institution that was more suitable for this type of transaction.”

What a missed opportunity by the broker to really serve her client, Burley pointed out. “This is a disturbing scenario.”

But don’t be deterred. Here are three suggestions for investing if your child doesn’t have access to a workplace retirement plan and only has a little money to start:

Tell them about “myRA.” This is a new type of account created by the Treasury Department targeted to low- and middle-income workers whose employers don’t offer a retirement plan. Your child can sign up by going to myra.gov.

It works similar to a Roth IRA. With both, you make after-tax contributions, and your earnings from the account aren’t taxed. With the myRA, there are no fees and you invest whatever you can afford, when you can. You may contribute up to $5,500 per year. And the federal government guarantees the investment.

But Burley offered a caution: “This should not be the strategy for long term growth though.”

That’s because the earnings are low. This account earns at the same rate as the Government Securities Fund, which had an average annual return of 2.94 percent over the last 10 years.

Get them started with an I Bond. The enemy of every saver is inflation, which decreases your dollar’s value. When people can spare so little, they are often scared to take too much risk. But inflation is a risk. So steer them to Series I inflation-indexed savings bonds, which are issued by the U.S. Treasury. Investors earn a combination of a fixed interest rate and the rate of inflation, adjusted semiannually.

You can invest as little as $25.

A Roth IRA is not out of the question. Don Blandin, president and chief executive of the nonprofit Investor Protection Trust (IPT), was irate at what the broker told the parent. “That’s like telling people that investing is for people who have a lot of money,” he said. “That’s just not true. There are many great opportunities to save and invest for the future at any income level.”

It’s possible to invest in a low-cost mutual fund through automatic investment plans. With Charles Schwab’s “Mutual Fund OneSource,” investors can invest in no-transaction-fee mutual funds with as little as $100.

“For starter investors, I’m a strong believer in index funds, which don’t have a lot of management fees,” Owens said. She suggests also looking at funds offered by TIAA and T. Rowe Price.

NerdWallet has created a chart listing its top picks for low-cost options to invest in a Roth. Go to nerdwallet.com and search for “Best Roth IRA Accounts: 2016 Top Picks.”

For noncommercial, objective and free material, get IPT’s “The Basics of Saving and Investing” at investorprotection.org. “Since time is one of the greatest advantages a person has when saving and investing, I would also encourage her to engage her kids in the process,” Blandin said.

So, yes, encouraging college grads and young adults to start investing is worth it, even if they only have a little to start. The ultimate goal, of course, is for them to increase that amount as they earn more. But right now, getting started is vital for them to develop a habit of regularly investing for retirement.