Portfolio and RothIRA

**Broken Arrow** · 01-25-2008, 05:40 AM

Welcome to the forums.

An IRA is a tax-advantaged shelter. That in and of itself does not dictate what kind of asset classes you can have in that shelter. That part is only limited to what your brokerage has to offer. So, if USAA offers stocks and bonds, then yes, it should be technically possible to have them in your IRA.

I think "brokerage account" is a more generic term that can mean both tax-advantaged as well as taxable accounts.

**jIM_Ohio** · 01-25-2008, 06:23 AM

IRA stands for Individual Retirement Arrangement (per IRS documents). There are many types of IRAs (deductable, traditional, Roth, and more) depending on income level, employer plan availability, and other.

You should:
1) do some basic retirement planning (IRAs are for retirement). This planning should help you decide what IRA type is best for you.

Pay attention to
a) money going in
b) taxes paid (or not) on money going in
c) tax bracket you earn top dollar in
d) how money comes out (your choice or required)
e) tax bracket of money coming out (guessing is OK)

2) Do some basic tax planning. This should tell you your current tax bracket and spending patterns

3) Do some basic investment planning. Understand compound interest, stocks, bonds, commodities and risks. Learn about asset allocation and how to pick an investment.

For example, you have an IRA already- is it a Roth or traditional? Did you get a tax deduction when you contributed? Can you convert to a Roth? What percent of your salary are you saving for retirement? What are you invested in now? Are you diversified into more than one type of investment? How much domestic equity? how much foreign quity? How much small caps?

The list of questions here is just a small amount of what you need to know now.

My suggestion:

Put money in a Roth IRA, if eligible. I would suggest using a low fee location like T Rowe Price. Banks tend to charge more in fees for a lower return investment than larger companies like T Rowe Price.

Try to set aside at least 10% of income for retirement. Do this the day you get paid and live on 90% or less of what you make. If you have at least 20 years to retirement, most of what you invest for retirement should be in equities (stocks). Divide this amongst small and large, domestic and foreign companies.

When you do your tax return this year, as the person preparing it to teach you about graduated tax brackets. Learn where you fall now, and where next highest bracket is for you.

**robertj08** · 01-25-2008, 06:35 AM

I'm young, 21, and I opened the Roth with Edward Jones seperately from any employer. The Roth has just a few mutual funds in it. Being young, should I just be putting as much as I can into the Roth or putting money elsewhere?

**jIM_Ohio** · 01-25-2008, 06:39 AM

Originally posted by robertj08 View Post

I'm young, 21, and I opened the Roth with Edward Jones seperately from any employer. The Roth has just a few mutual funds in it. Being young, should I just be putting as much as I can into the Roth or putting money elsewhere?

YES.

I would suggest doing some reading on retirement planning. I will go a long way towards being financially independant and not having to work until you are 70.

Time is the biggest multiplier, at age 21 you have more time than most posters here and most investors in general (most people do not start until around 22-32 years of age).

Learn about compound interest.

You can probably do better than investing with Edward Jones. How did you choose EJ?

**robertj08** · 01-25-2008, 07:02 AM

I was 19, I just joined the Army out of highschool and I had a bonus I wanted to invest, but I wasn't really sure how. There is an Edward Jones in almost every city around here so I went and talked to them. They suggested I opened up a Roth IRA. I'm still not sure at my age how I should be investing. I've read I should be invested more in my stocks, but I'm not sure HOW I should be investing in stocks. Should I buy stocks through an online broker, or just have mostly stocks inside my Roth? I'm still young, but I'm getting out of the Army this year and will be going to school, so I don't have large amounts to invest, but I like to make sure I'm putting as much away as I can.

**buzz** · 01-25-2008, 07:15 AM

A method preferred by many on this board, myself included, is to have an account with a low-cost mutual fund company, such as Vanguard, Fidelity, or T Rowe Price, and invest directly through them.

Like jIM_Ohio, I was also curious as to how you decided upon Edward Jones. I looked at their website briefly, they don't seem to be very forthcoming about costs.

I have based by investments upon index funds at Vanguard. They have an investing primer that may answer some of your questions.

I would recommend investment in individual stocks and bonds until you are far more knowledgeable. Many mutual fund companies offer funds that combine bonds with foreign and domestic stocks. Something like this would give you a good foundation to begin investing in the market while you do some research.

Vanguard Target Retirement 2040 Fund

**buzz** · 01-25-2008, 07:31 AM

T Rowe Price has a plan that allows you to get started without the steep minimum opening investment required by other companies. If I remember correctly, you need to setup automatic contributions of at least $50/month.

RETIREMENT 2040 FUND

**jIM_Ohio** · 01-25-2008, 09:21 AM

My best suggestions to you:

1) Invest as young as possible. Age 19 is a great start.
2) Try to save at least 10% of your income for retirement every year (pay yourself before you pay anyone else)
3) Determine an asset allocation suitable for you, such as 80% stocks, 20% equities. You could put 40% into total US stock market index, 40% into all world stock index, and 20% bonds and let it ride, or do more research and learn more ways to make money. Some people (like me) avoid index funds and use managed funds. Other people (including people on this board) swear I pay too much in expenses and would only invest in the cheapest of index funds. Regardless of which camp you are in, the important thing to do is invest. The earlier you invest, the more time will be on your side.

Two people invest. Both are the same age.

Person A invests from age 19-29 (10 years) sending in $1000 each year and earning 10% return. At age 29 this person stops because he has a family and justs lets the money sit there until age 48, still earning 10% return. Person A has $118,000 at age 48, with only $10,000 of their own money invested.

Person B does not invest until age 29. Person B invests $1000 from ages 29-48 (20 years). Earns same 10% return as Person A. Person B at age 48 has $63,000.

Person A and B invested in same thing (got same return). Person B put in twice as much money ($20,000 to $10,000), yet had HALF the amount 30 years later.

The biggest difference was person A got a 10 year head start. The head start allows person A to invest less money overall, and end up with a higher personal return than other investors which start much later in life.

Invest while you are young. Use equity based investments for most positive results (over 20 and 30 year periods).

**robertj08** · 01-25-2008, 10:40 AM

If I were to open an account with another company, what should I do with my RothIRA?

**buzz** · 01-25-2008, 10:48 AM

Originally posted by robertj08 View Post

If I were to open an account with another company, what should I do with my RothIRA?

If you pick a new investment company, you can transfer the IRA directly. Just call the new company's Customer Service. I have dealt with CS at Fidelity and Vanguard, and they both bent over backwards to be helpful. They will answer questions and help set up accounts and transfer funds.

**robertj08** · 01-25-2008, 11:00 AM

If I did that, what would happen to the mutual funds already inside the account?

To make sure I got this right, I have an IRA, I buy funds to put inside it, I contribute to the IRA to continue buying shares of the fund, the fund increases in value and makes money?

**jIM_Ohio** · 01-25-2008, 12:29 PM

Originally posted by robertj08 View Post

If I did that, what would happen to the mutual funds already inside the account?

To make sure I got this right, I have an IRA, I buy funds to put inside it, I contribute to the IRA to continue buying shares of the fund, the fund increases in value and makes money?

I don't know how EJ works. Ask EJ rep.

T Rowe Price or another company might be able to help you change IRA custodians, call them and ask. Tell them jIM sent you (LOL).

Yes- you buy funds in an IRA
Yes- the funds might go up in value
(not asked) the funds will also pay you dividends
(not asked) the dividends will then buy more shares of the funds you already own.
(not asked) the new shares bought with the dividends will also go up in value

the 3 not asked comments are compound interest. Interest gaining interest. Then the interest you got the second time makes interest. And it keeps spiraling larger (interest making interest which makes more interest).

I have put around 60k in investments in my life, and those investments are worth more than 160k right now. That is compound interest over 11 years. The longer the money is invested, the more money I make.

**buzz** · 01-25-2008, 12:37 PM

The funds in your old account would be sold, and you would have to specify how you want the funds invested in the new account.

The fund will increase or decrease in value, depending upon the market performance of it's holdings. There will also be a periodic dividend, which you should have reinvested. If the market price of a fund increases 5% in a year and yields 2.5% in dividends, you have a total return of 7.5%.

Honestly, it sounds like you need to do a bit of investigation. It takes some time to learn even the very basics of investing. Until you are more comfortable with the ins and outs of investing, perhaps you would want to save up in an online money market. Forum member poundwise has a nice list.

**Taribor** · 01-25-2008, 01:01 PM

Originally posted by robertj08 View Post

If I were to open an account with another company, what should I do with my RothIRA?

Give USAA a call, I also use them for all retirement/investing; they will give you free investing advice and they are commission free. Just my opinion, but there are not many, if any, better places to put your money than with them. They take care of their military customers.

Portfolio and RothIRA