Some Financial investing questions

[tin369]

Hi all,

First post here, I have around $5000 and want to invest it somewhere, but don't know where to. I have no debt, and have emergency funds.

I was thinking mutual funds but have not idea where to start. So any advise on how my money can grow quickly would be appreciated.

[Mr Nice Guy]

We have an investing section on this forum.

Do you have a retirement account?

[disneysteve]

Welcome. Not nearly enough info given to answer your question.

Age
Marital/family status
retirement savings
goals for this particular money

There is nothing that any of us will recommend to get rich quickly but we'll be happy to give suggestions of how to build a solid foundation and work toward a good financial future.

[tin369]

Sorry if this is posted in the wrong thread. I am 30, and married. nothing in the retirement fund. No specific goal but want the money to grow, instead of sitting in the checking account.

[bjl584]

Sorry if this is posted in the wrong thread. I am 30, and married. nothing in the retirement fund. No specific goal but want the money to grow, instead of sitting in the checking account.

I would suggest a ROTH IRA.

[disneysteve]

I would suggest a ROTH IRA.

I think that depends on whether or not there is an employer-sponsored plan. If OP can get a company match, that would be better than a Roth in most cases.

[jpg7n16]

nothing in the retirement fund.

As long as this is money above what you need for your 3-6month EF, and not part of the EF then...

I would suggest a ROTH IRA.

... invested in a target date fund around 2045. You gotta start saving for retirement sometime.

[bjl584]

I think that depends on whether or not there is an employer-sponsored plan. If OP can get a company match, that would be better than a Roth in most cases.

My stepfather and I have had this conversation. He is in full favor of a ROTH for the following reasons:

All withdrawls are tax free. Creating a ROTH account with several dividend yielding funds means tax free supplemental income later in life.

You can buy almost anything within a ROTH and are not limited to the fund choices that your employer offers.

He believes that with current fiscal policies, taxes have nowhere to go but up in the future. These means all withdrawls from a 401K plan will be taxed at a higher rate in the future.

Now, he does support contributing to a company sponsored plan, because the match is free money. However, he cautions against putting too much into a plan like this because of the above reasons and because he believes in keeping a certain portion of investments outside of retirement accounts so that you have access to it.

He makes a compelling argument. Personally, I contribute 8% to my 401K (my company matches 100% up to 3%), I fully fund a ROTH, and I fund about 10% to non retirement accounts. My goal is to build a dividend yielding portfolio in the ROTH that will be reinvested now and drawn out as cash when I retire. 30 years from now that should equate to quite a substantial amount of extra tax free income. I've kicked around the idea of bumping the 401 to 10%, but I think that I would rather invest and keep my money elsewhere. If an opportunity comes along for an investment or even to buy something, having all my money tied up in accounts that I can't access for the next 30 years does me no good.

[disneysteve]

My stepfather and I have had this conversation. He is in full favor of a ROTH for the following reasons:

All withdrawls are tax free. Creating a ROTH account with several dividend yielding funds means tax free supplemental income later in life.

You can buy almost anything within a ROTH and are not limited to the fund choices that your employer offers.

He believes that with current fiscal policies, taxes have nowhere to go but up in the future. These means all withdrawls from a 401K plan will be taxed at a higher rate in the future.

Now, he does support contributing to a company sponsored plan, because the match is free money. However, he cautions against putting too much into a plan like this because of the above reasons and because he believes in keeping a certain portion of investments outside of retirement accounts so that you have access to it.

I agree with everything your stepfather has said.

The one other advantage to the Roth is that there is no required minimum distribution each year. Many people actually don't need to tap the money in their 401k or traditional IRA to the extent that the government requires them to each year. With a Roth, if you don't need the money, you don't have to take it out. It can continue to grow tax-free until you do need it.

Finally, something that I am firmly against but exists is the ability to withdraw money you contributed to your Roth at any time for any reason without penalty. So you could consider it to be a catastrophic emergency fund, not for every day stuff like car repairs but if something really, really bad happened, like a medical disaster, you could access that money easily before retirement.

[bjl584]

Yes, I know that you can withdraw that money without penalty, but I would never touch it. I believe that the money that you put in can be withdrawn at any time, but any money that you "made" in the account will be subject to penalty.

[disneysteve]

Yes, I know that you can withdraw that money without penalty, but I would never touch it. I believe that the money that you put in can be withdrawn at any time, but any money that you "made" in the account will be subject to penalty.

Correct. Contributions can be withdrawn. Earnings can not (without penalty).

Again, I am totally opposed to taking money out except in truly catastrophic circumstances, like life or death stuff.

[tin369]

The only downside I see is that the Roth IRA contributions are not tax deductible., whereas in 401k it is. So i still don't know which direction I should take

[bjl584]

The only downside I see is that the Roth IRA contributions are not tax deductible., whereas in 401k it is. So i still don't know which direction I should take

All Roth contributions are on an after-tax basis. 401K contributions are taken out pretax which lowers your total earned income.

I'm not a tax expert, but I believe that IRA contributions are tax deductable, however there are a lot of restrictions. Most don't qualify for this deduction.

It all comes down to whether you want to pay taxes now, or later in life.

[jpg7n16]

The only downside I see is that the Roth IRA contributions are not tax deductible., whereas in 401k it is. So i still don't know which direction I should take

Why do you feel that you need the tax deduction today? Are you in a high tax bracket? And/or a state that pays state income tax?

And true, Roth contributions are not deductible today - but their withdrawals are tax free. 401k withdrawals are not tax free.

[Phineas]

If you have time to do some business then don't invest in mutual funds as you will lose in the end and it is also out of your control and in my views the out of control business will never get you profits always and the stock market business has no basis and it all about speculations and you are always on the edge.