Step 1: Build a 3-Month Emergency Fund First
Before investing a single dollar, put 3 months of living expenses in a high-yield savings account. Earning 4.75% on your emergency fund is compound interest too. And maintaining this cushion prevents you from being forced to sell investments at bad prices when life happens.
Step 2: Capture Your Employer’s 401(k) Match
If your employer offers a retirement match, contribute exactly enough to capture 100% of it. Typically: 'We match 50% of contributions up to 6% of salary.' Contribute 6%. This is a guaranteed 50% return on that portion of your investment before any market performance.
Step 3: Open and Max a Roth IRA
Open a Roth IRA at Fidelity, Vanguard, or Schwab (all free, no minimums for most index funds). Contribute up to $7,000/year ($583/month). Choose a total market index fund (FSKAX at Fidelity, VTSAX at Vanguard, or SWTSX at Schwab). These single funds contain every U.S. public company at 0.01–0.04% expense ratio.
Best brokerages for first-time Roth IRA investors in 2025
| Brokerage | Roth IRA Minimum | Recommended Starting Fund | Expense Ratio |
|---|---|---|---|
| Fidelity | $0 | FSKAX (Total Market) | 0.015% |
| Vanguard | $0 (ETF version) | VTI (ETF) or VTSAX ($3,000 min) | 0.03% |
| Schwab | $0 | SWTSX (Total Market) | 0.03% |
| M1 Finance | $100 | VTI or SPY | 0.03% |
You don’t need a complicated portfolio to start. A single total market index fund (FSKAX, VTSAX, or VTI) gives you 3,500+ companies in one fund, instant diversification, and historically ~10% annual returns since 1926. Complex portfolios don’t consistently outperform a single index fund for most investors.
Step 4: Increase 401(k) Beyond Match
After maxing the Roth IRA, increase your 401(k) contribution to capture as much of the $23,500 annual limit as your budget allows. Choose the lowest-cost index funds available in your plan (typically an S&P 500 or total market index fund).
Step 5: Automate Everything
Set your Roth IRA to auto-invest $583/month on the 5th of each month (after your paycheck clears). Set your 401(k) contribution in your payroll system to auto-increase 1% each year. You’ll never think about investing again — it just compounds.
See What Your Plan Builds Over Time
Enter your starting amount and monthly contribution — watch your compound interest plan grow over 20, 30, 40 years.