Simple Steps To Begin Investing

By Albert B. Crenshaw
Washington Post Staff Writer
Sunday, April 9, 2006

To a degree unseen since early in the last century, young people at the beginning of their working lives today are on their own.

Their employers will provide a paycheck, but other facets of their economic lives -- facets once covered by the "fringe benefits" provided to earlier generations of workers -- are increasingly in the hands of the workers themselves. For their retirement, for their children's college and, in a growing number of cases, even their health insurance needs, they are expected to use a combination of their own money, their employer's money and tax benefits to build up the necessary assets.

That means investing is no longer merely an avocation of the wealthy; it is a necessity for the middle class.

A key element of investment success is time. The best way to build assets is to harness the power of compounding, and that power grows with every year it is allowed to operate.

This is good news for younger workers, who have time in abundance, but it is also a message to them to start now because every year that slips away is time, and money, lost.

Banking -- The first step toward building an investment portfolio is getting some money together, and careful choice and use of banking services can be surprisingly helpful.

(Many of you will be offered a 401(k) retirement plan at work, and you must, must , sign up. There are tax advantages and maybe free money, so don't miss out. More on that below.)

You should have a checking account. Indeed, you may have to have one if your employer wants to deposit your pay electronically rather than handing you a paper check.

But you shouldn't simply walk into the first bank you see and sign up. You are lending the bank your money when you make a deposit, so take a look at what it's willing to pay you.

There are two things to look at: fees and interest rates. No fees are better than fees, and interest is better than no interest, and higher interest is better than lower interest. The trick is getting the best combination. If you don't have a lot of money, no-fee services may be worth more than interest.

Some institutions offer interest-bearing checking accounts, but often they have requirements, such as high balances, that may not suit young workers.

An exception in today's marketplace seems to be the relatively new group of online banks, which operate over the Internet and have few if any branches. Some of these ask only that you sign up for direct deposit of your paycheck. However, getting cash without incurring an ATM fee may be tough, and if you sometimes get paper checks made out to you, you may have to deposit them by mail.

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