questions about IRA?

[Gemini9981]

Hi,

I am sorry if these are dumb questions. I don't know much about IRAs and would appreciate your help. The information I have seen on how much you can make for retirement appears to be based on estimates based on the average performance of certain funds, usually around 10%. Does this mean that it is possible you won't make this much? Is there any possibility that you can lose money and that having a money market with a 5.3% interest rate is actually better? What if you want to withdraw some money from the account before retirement? Are there consequences?
Also, are there any retirement accounts which the minimum amount you will earn is guaranteed?

If you can answer any of these questions, I would greatly appreciate it.

Thanks!

Gemini

[BEVO]

gemini, i think you got your answers on another thread (i think you said that you wanted to buy a house and car within 2 years).

LONG term, you are better off with a good index fund (look at vanguard) versus a savings account. go to a site like vanguard or fidelity,etc., and they have lots of free information and they do a very good job explaining about savings and mutual funds, etc.,

again, i think it is great that you are only 25 and already so focused on savings and investments.

[sweeps]

Gemini, no, there's no guarantee that a stock fund is going to earn 10% in a given year. It could be higher, it could be lower, or you could actually lose money. That's why you don't want to invest in stocks for short-term goals.

But over many years, stocks wildly outperform other assets. Since you have 40 years or more for your retirement assets to grow, 90% of your retirement savings should be in stocks (about 1/3 of which should be in international stocks).

[QueenOphelia]

I'm sure you've heard the saying "No risk, no gain" I always have that in the back of my mind when I invest in stocks and mutual funds.

The $$ risk is greater than a money market but the $$ reward can be much greater than the current 5% most money markets.

The downside with any stock, bond, mutual fund investing is you can lose big as well. If you are young enough to withstand a major loss (most investment advisors say under 50) than go for the gusto and take the risk.

I am in my early '40s and have most of my retirement money in aggressive mutual funds. The past two years i have been averaging a cumulative rate of return of 30%......pretty darn good. I use Fidelity and find them to be quite user friendly.

[disneysteve]

The long-term average return of the broad stock market is about 10%. Being an average, it means that some years the market earns more, some years it earns less. Some years it even has a negative return.

So looking at things from a very short-term view, there may be years when a money market outperforms the stock market, but those years are very rare.

Your retirement account is a long-term investment, so you can't look at it from a short-term point of view. Stocks are the way to go, and the younger you are, the more of your money should be in stocks.

Just as a real-life example, I own 7 stock mutual funds. The 1-year returns range from 10.68 to 39.11%. So my WORST fund is just over 10% and my best fund is nearly 4 times that! So yes, I could instead have chosen a guaranteed 5% return, but what sense would that make? I'll never reach my retirement goals at that rate.

As for withdraws from an IRA, it depends on the account. If you have a ROTH, you can withdraw your contributions at any time for any reason. There are only penalties if you withdraw the earnings. I believe there are circumstances when you can withdraw from a traditional IRA without penalty but I'm not sure of the details.

[instantinfo4you]

I would definitely not suggest investing into a mma, of only 5%. Sure that 5% may be guranteed, but think about how much of a gain you are actually getting. Yearly inflation rates are around 3%, so after inflation, you only have a 2% gain. Not only that, but by having that money in the mma, you cannot invest it elsewhere, where gains would be better. If you are not into investing for yourself, then be sure to thoroughly investigate the company you will invest in. Be sure to ask extensive questions, and if they are at all hesitant about answering, then find a different company. Remember that it is YOUR money, and you should have ultimate control over it.

[Gemini9981]

Thank you all for your advice!