IS Saving $5,000 a year a good idea?

[Ima saver]

Well if you put it in a bank, you will know the interest rate. Most of us put our roth ira's in mutual funds. My vanguard mutual fund (Index 500) has averaged about 10% a year, some years better and some years worse.

[Savingmonster]

Originally Posted by autoxer

A Roth is a type of account, not the actual investment. After you open a Roth IRA (individual retirement account), then you can buy equities (stocks, mutual funds, bonds) that all have different rates with different levels of risk.

Ohh I see, I understand now. As long as the Money I contribute is liquid, it might not be such a bad Idea to decrease the amount I put into my savings account and contribute more to the Roth.

[Savingmonster]

Originally Posted by Ima saver

Well if you put it in a bank, you will know the interest rate. Most of us put our roth ira's in mutual funds. My vanguard mutual fund (Index 500) has averaged about 10% a year, some years better and some years worse.

Do you think it ever drops below say 3%?

[threebeansalad]

Savingsmonster- I suggest getting a personal finance book from your library and reading it over. It will help clarify the differences in the types of the retirement accounts, general yields you can expect to earn, etc.

By all means, stay on the boards, too.. but I have found it really helpful to have a good book to reference with questions-- especially when I was first getting a handle on things (which was, err, like 3 months ago).

David Bach's books (Smart Couples Finish Rich, the Automatic Millionaire, etc) are a little cheesy, but a good place to start.

[Ima saver]

When the stock market has a real bad year, most stock mutual funds go down also. You have to look at this for the long haul. I feel most comfortable with a mix of mutual funds and then lots of cash earning over 5% interest, but I am much older than you. You need to be a little more agressive than I am. "The Wealthy Barber" is a very simple book to understand.

[scfr]

Yes - by all means get a good basic personal finance book. If you do a search of this forum you will find some threads regarding books with lots of good suggestions.

A fairly new one that I like is "The Net Worth Workout" by Susan Feitelberg. A big added bonus is that there is currently a FREE Book Club at Barnesandnoble.com that is led by this author; it is a rare opportunity to interact with a financial adviser for a major company (JPMorgan Chase) for absolutely free. That is something many people pay lots of money for. Unfortunately, the book club ends at the end of Jan, so if you are interested you'll need to do it right away.

[humandraydel]

The S&P 500 went up about 14-16% in 2006. Some years will be more, some less, some may be negative. But historically, almost every 30 year period in history has returned an average of about 10% per year. The difference between 10% per year and 5% per year over 30 years is HUGE. That's why I said at your age you need to be investing - you've got 25-30 years to ride out any downturns in the market.