SavingsTalk.com

007 · 10-31-2007, 02:25 PM

Here are the details. I'm 23 working full-time for a small non-profit. Through my job I am offered no benefits, no health insurance and definitely not a 401K. A couple of months ago, I picked up a second job to finish paying off my credit card debt. And now that the debt is gone, I need a way to wisely invest my income. I have plans to set up a 6mo. CD (or a couple of them), so that I can be earning something on my money, but still have it relatively available. I've been reading lots of articles online about investing for my future, but still need help. I'd start with $1000 and plan to invest at least $100 every month. Does anyone have any bright ideas for me? I appreciate your answers so far, but as a quick clarification. I'm looking to start a couple of short term CDs in addition to whatever major investment I may make. The CDs would be my "in case of emergency" fund. I'd just rather have them in a 6mo CD earning 4.5% than my savings account earned 2%.

alexanra · 10-31-2007, 02:25 PM

I opened an account at Charles Schwab when I was your age and am still happy with it 20 years later. You can invest in CD, stocks, mutual funds all in this one account.

Stay away from most financial planners. They're just looking to earn a commission off of you.

Minsk · 10-31-2007, 02:25 PM

I'll begin by saying that a CD is likely not the right place for an IRA account at age 23. They are probably offering around 4-5% interest. Stocks in the long run average 11-12% interest (and you have a long time before retirement so it is certainly a long run investment).
$1,200/year @ 4% for 35 years = $88,000
$1,200/year @ 11% for 35 years = $410,000

Notice that at 11% interest, you can have about 5 times what you would have at 4%, that is HUGE and not an opportunity you should pass up. **And all tax free when you withdraw it since it's in a ROTH IRA.

I suggest you go to Vanguard to start a ROTH IRA. Here is their ROTH IRA information:
https://flagship.vanguard.com/VGApp/hnw/accounttypes/retirement/ATSRothIRAOverviewContent.jsp
You should read that page then click the "Invest Now" link on the upper right if you're ready to get started.

For now, I think there is only 1 option to invest there with only $1,000, the Vanguard Star Fund, but it is the type of fund you should be looking for (long term appreciation).

After you have built up $3,000, I recommend the Target Retirement 2050 fund. It starts out mostly stocks (risky investments with higher expected returns... around 11%) and slowly transitions you from stocks to bonds (less risky investments with lower expected returns... around 8%) over the course of your career.
It isn't too hard to set up the ROTH IRA through Vanguard. The website is somewhat self explainatory. And Vanguard has the lowest fees in the industry that I've ever seen. It costs you nothing except the ~0.2%/year they charge to manage the funds, most other companies rund around 1%/year and often have other fees.

You can contribute up to $4,000 in 2007 and up to $5,000 in 2008 and every year in the future. If you were to contribute the maximum every year, I estimate that you'd be a millionairre at age 54. But even at $1,200/year starting at your age your future is looking pretty bright.

Best of luck in your investing future!

EDIT TO ADDRESS NEW COMMENT:
Having an emergency fund is a great idea. Your origional question stated that you're hoping to open an IRA or ROTH IRA, that is not the place to have an emergency fund. Those accounts are designed as retirement accounts and it is difficult and/or costly to withdraw the money before you are in retirement.
Here is where I would keep an emergency account:
http://www.hsbcdirect.com/1/2/1/default/learn-more/osa?code=PPGD390000
It earns 5.05% (more than most CDs), has no minimum balance, and you can withdraw the money at any time (more access than CDs).

Do think about a retirement account as well in the not-to-distant future, that is very important as well.

50cents · 10-31-2007, 02:25 PM

Congratulations on paying off your debt!

A Roth IRA may be the best option for you. You can open those at just about any financial institution. I would recommend using a discount brokerage to start off. (e.g. etrade, fidelity, scottrade,and so on).

Here are a couple reasons why I would suggest the Roth over a Traditional IRA:

1.) Sounds like you are still starting out in your career and possibly in a low tax bracket. This is an advantage to you because you will not have to pay taxes later when you retire, at which point your taxes will be higher.

2.)You mentioned you may need the money to be relatively available. Although I would never recommend using your Roth as a short term savings vehicle, you have the ability to access your principal amount without penalty. (If you know you will need to access the money dont put it in, keep a seperate savings for that)

When you do start your investment I recommend using mutual funds that utilizes asset allocation based on your risk tolerance or a target maturity fund based on your investment time horizon. These types of fund will keep you diversified. Until you have more assets and experience with investing I would stay away from individual stocks or sector funds.

Good luck!

sox · 10-31-2007, 02:25 PM

I could type a couple of huge paragraphs from where I get my information but I would prefer to just give you the link:

http://www.plannerconnect.com/retirement-planning.html

They cover pretty much every question you could think of when it comes to retirement. They also have a retirement calculator. There is information on investing for retirement, 401Ks, annuities, IRAs, and all that great stuff. I am 22 and in a similar boat that you are in, I actually eneded up calling these guys with a list of questions and meeting with a financial planner and it didn't cost me a dime.

dotru · 10-31-2007, 02:25 PM

A lot of savings banks offer Roth IRAs. You can contribute up to $4000 a year right now in a Roth, and the interest rate is preety good.

Instead of putting your money in short term CDs, you might want to look at money market accounts. The interest rate is higher, and it will be easier to get the money out in case of an emergency. If you need the money two months after you open the CD, you may have to pay penalties to break it. You wouldn't have to pay any penalties with a money market.

chicago_bull · 10-31-2007, 02:25 PM

You can talk to an investment rep at your local bank, its free and they help a lot. You can contribute a monthly amount and let it grow. They also have great advise for annuities and mutual funds that you can puchase and let grow. You don't need a lot of money to start investing. The fact that your 23 and want to start is a good start.

Minsk · 10-31-2007, 02:25 PM

Invest in Stocks and Mutual Funds.
Stocks you need to monitor on day 2 day basis, do a research on your own. Take the record of 64 weeks highest and lowest before investments. In this: High returns and high risk.
Mutual funds will give you less: Medium returns and medium risk.
Based on your age and temperament you should decide on your own.
Best of Luck

kevin · 10-31-2007, 02:25 PM

First, you are probably eligible for a Roth IRA. A Roth would be better for you than a Traditional IRA because you can invest money post tax and withdraw at retirement tax free, although contributions are not tax deductible now. The max contribution for 2007 is $4000. I would open your Roth with Vanguard or Fidelity, who offer no-load, low fee index funds. These are always a good way to begin a portfolio.

Also, even if you work for a non-profit, they can offer a 403b (the non-proft and education equivalent to a 401k). You should speak to your manager or HR to see if they can contact someone like TIAA CREF to establish a 403b offering for their employees.

Also, make your investment automated, so you don't miss the funds. You can set up automatic investment plans with any mutual fund or broker dealer. I would start out with a diversified, no loan index fund and since you are young, begin with an equity index, like the S&P 500 or Total Stock Market Index. These are available through www.vanguard.com or many other fund families. Make sure they are no-load, low fee options. As you grow your portfolio, you can add investments to compliment and diverisfy out of your holdings.

Annuities should only be an option when you've maxed out all your tax advantaged possibilities because they tend to carry higher fee and expenses.

Since you've made your decision to save and pay off your debt, you are well on your way!! Good luck!

10-31-2007, 02:25 PM	#1
007 Greenhorn Join Date: Jul 2006 Posts: 16 Rep Power: 0	Need help planning for retirement, how do I get started with an IRA or Roth IRA? (A 401K is not an option)? Here are the details. I'm 23 working full-time for a small non-profit. Through my job I am offered no benefits, no health insurance and definitely not a 401K. A couple of months ago, I picked up a second job to finish paying off my credit card debt. And now that the debt is gone, I need a way to wisely invest my income.<br /><br />I have plans to set up a 6mo. CD (or a couple of them), so that I can be earning something on my money, but still have it relatively available. I've been reading lots of articles online about investing for my future, but still need help. I'd start with $1000 and plan to invest at least $100 every month.<br /><br />Does anyone have any bright ideas for me?<br />I appreciate your answers so far, but as a quick clarification. I'm looking to start a couple of short term CDs in addition to whatever major investment I may make. The CDs would be my "in case of emergency" fund. I'd just rather have them in a 6mo CD earning 4.5% than my savings account earned 2%.<br />

10-31-2007, 02:25 PM	#2
alexanra Greenhorn Join Date: Jul 2006 Posts: 9 Rep Power: 0	Need help planning for retirement, how do I get started with an IRA or Roth IRA? (A 401K is not an option)? I opened an account at Charles Schwab when I was your age and am still happy with it 20 years later. You can invest in CD, stocks, mutual funds all in this one account. Stay away from most financial planners. They're just looking to earn a commission off of you.

10-31-2007, 02:25 PM	#3
Minsk Greenhorn Join Date: Jul 2006 Posts: 16 Rep Power: 0	Need help planning for retirement, how do I get started with an IRA or Roth IRA? (A 401K is not an option)? I'll begin by saying that a CD is likely not the right place for an IRA account at age 23. They are probably offering around 4-5% interest. Stocks in the long run average 11-12% interest (and you have a long time before retirement so it is certainly a long run investment). $1,200/year @ 4% for 35 years = $88,000 $1,200/year @ 11% for 35 years = $410,000 Notice that at 11% interest, you can have about 5 times what you would have at 4%, that is HUGE and not an opportunity you should pass up. **And all tax free when you withdraw it since it's in a ROTH IRA. I suggest you go to Vanguard to start a ROTH IRA. Here is their ROTH IRA information: https://flagship.vanguard.com/VGApp/hnw/accounttypes/retirement/ATSRothIRAOverviewContent.jsp You should read that page then click the "Invest Now" link on the upper right if you're ready to get started. For now, I think there is only 1 option to invest there with only $1,000, the Vanguard Star Fund, but it is the type of fund you should be looking for (long term appreciation). After you have built up $3,000, I recommend the Target Retirement 2050 fund. It starts out mostly stocks (risky investments with higher expected returns... around 11%) and slowly transitions you from stocks to bonds (less risky investments with lower expected returns... around 8%) over the course of your career. It isn't too hard to set up the ROTH IRA through Vanguard. The website is somewhat self explainatory. And Vanguard has the lowest fees in the industry that I've ever seen. It costs you nothing except the ~0.2%/year they charge to manage the funds, most other companies rund around 1%/year and often have other fees. You can contribute up to $4,000 in 2007 and up to $5,000 in 2008 and every year in the future. If you were to contribute the maximum every year, I estimate that you'd be a millionairre at age 54. But even at $1,200/year starting at your age your future is looking pretty bright. Best of luck in your investing future! EDIT TO ADDRESS NEW COMMENT: Having an emergency fund is a great idea. Your origional question stated that you're hoping to open an IRA or ROTH IRA, that is not the place to have an emergency fund. Those accounts are designed as retirement accounts and it is difficult and/or costly to withdraw the money before you are in retirement. Here is where I would keep an emergency account: http://www.hsbcdirect.com/1/2/1/default/learn-more/osa?code=PPGD390000 It earns 5.05% (more than most CDs), has no minimum balance, and you can withdraw the money at any time (more access than CDs). Do think about a retirement account as well in the not-to-distant future, that is very important as well.

10-31-2007, 02:25 PM	#4
50cents Greenhorn Join Date: Jul 2006 Posts: 16 Rep Power: 0	Need help planning for retirement, how do I get started with an IRA or Roth IRA? (A 401K is not an option)? Congratulations on paying off your debt! A Roth IRA may be the best option for you. You can open those at just about any financial institution. I would recommend using a discount brokerage to start off. (e.g. etrade, fidelity, scottrade,and so on). Here are a couple reasons why I would suggest the Roth over a Traditional IRA: 1.) Sounds like you are still starting out in your career and possibly in a low tax bracket. This is an advantage to you because you will not have to pay taxes later when you retire, at which point your taxes will be higher. 2.)You mentioned you may need the money to be relatively available. Although I would never recommend using your Roth as a short term savings vehicle, you have the ability to access your principal amount without penalty. (If you know you will need to access the money dont put it in, keep a seperate savings for that) When you do start your investment I recommend using mutual funds that utilizes asset allocation based on your risk tolerance or a target maturity fund based on your investment time horizon. These types of fund will keep you diversified. Until you have more assets and experience with investing I would stay away from individual stocks or sector funds. Good luck!

10-31-2007, 02:25 PM	#5
sox Piggy Bank Join Date: Jul 2006 Posts: 59 Rep Power: 6	Need help planning for retirement, how do I get started with an IRA or Roth IRA? (A 401K is not an option)? I could type a couple of huge paragraphs from where I get my information but I would prefer to just give you the link: http://www.plannerconnect.com/retirement-planning.html They cover pretty much every question you could think of when it comes to retirement. They also have a retirement calculator. There is information on investing for retirement, 401Ks, annuities, IRAs, and all that great stuff. I am 22 and in a similar boat that you are in, I actually eneded up calling these guys with a list of questions and meeting with a financial planner and it didn't cost me a dime.

10-31-2007, 02:25 PM	#6
dotru Greenhorn Join Date: Jul 2006 Posts: 16 Rep Power: 0	Need help planning for retirement, how do I get started with an IRA or Roth IRA? (A 401K is not an option)? A lot of savings banks offer Roth IRAs. You can contribute up to $4000 a year right now in a Roth, and the interest rate is preety good. Instead of putting your money in short term CDs, you might want to look at money market accounts. The interest rate is higher, and it will be easier to get the money out in case of an emergency. If you need the money two months after you open the CD, you may have to pay penalties to break it. You wouldn't have to pay any penalties with a money market.

10-31-2007, 02:25 PM	#7
chicago_bull Piggy Bank Join Date: Jul 2006 Posts: 60 Rep Power: 6	Need help planning for retirement, how do I get started with an IRA or Roth IRA? (A 401K is not an option)? You can talk to an investment rep at your local bank, its free and they help a lot. You can contribute a monthly amount and let it grow. They also have great advise for annuities and mutual funds that you can puchase and let grow. You don't need a lot of money to start investing. The fact that your 23 and want to start is a good start.

10-31-2007, 02:25 PM	#9
kevin Greenhorn Join Date: Jul 2006 Posts: 26 Rep Power: 6	Need help planning for retirement, how do I get started with an IRA or Roth IRA? (A 401K is not an option)? First, you are probably eligible for a Roth IRA. A Roth would be better for you than a Traditional IRA because you can invest money post tax and withdraw at retirement tax free, although contributions are not tax deductible now. The max contribution for 2007 is $4000. I would open your Roth with Vanguard or Fidelity, who offer no-load, low fee index funds. These are always a good way to begin a portfolio. Also, even if you work for a non-profit, they can offer a 403b (the non-proft and education equivalent to a 401k). You should speak to your manager or HR to see if they can contact someone like TIAA CREF to establish a 403b offering for their employees. Also, make your investment automated, so you don't miss the funds. You can set up automatic investment plans with any mutual fund or broker dealer. I would start out with a diversified, no loan index fund and since you are young, begin with an equity index, like the S&P 500 or Total Stock Market Index. These are available through www.vanguard.com or many other fund families. Make sure they are no-load, low fee options. As you grow your portfolio, you can add investments to compliment and diverisfy out of your holdings. Annuities should only be an option when you've maxed out all your tax advantaged possibilities because they tend to carry higher fee and expenses. Since you've made your decision to save and pay off your debt, you are well on your way!! Good luck!

SavingsTalk.com

Your guide to saving money and making smart investments!