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Newbie question about what account to have a $5,000 IRA?
Old 06-18-2012, 11:17 AM   #1
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Newbie question about what account to have a $5,000 IRA?

I'm new to IRAs. I'm 31 years old. Last year I opened my first IRA.. a traditional IRA. For months it's been sitting in my ShareBuilder / ING Direct account. It seems like there must be a better use for it. There is only $5,000 in it. I probably will not be able to contribute again this year. So I just intend to have the $5,000 until I'm employed again.

My first thought has been to invest in stocks.. but I've had terrible luck with stocks in the past. Or putting it into one of those Vanguard accounts that people think is good for IRAs. As I read investment forums though many folks feel it's a bad time to be investing in stocks due to a possible second global downturn.

Basically, I am just hoping to get some opinions. What are the best returns right now for an IRA account? I want to move the money somewhere or do something with it to get a return on it instead of it sitting there. I'm just honestly not sure what to do with it. I'm relatively new to investing and this is my first IRA.

Hoping to get some good ideas.

Thank you very much!
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Old 06-18-2012, 11:18 AM   #2
Confused about dryer sheets
 
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I'm still thinking at some point I may need to take it out earlier.. medical emergency sometime in the next 29 years, etc.. or if I can put it toward a house someday. So I just want to get some decent return. I'm not sure what the best options are for IRA accounts right now. Like I said, it's just sitting there now. I looked at some options. I was going to trade ETFs with eTrade. But eTrade decided to freeze my money for a month while they made me jump through hoops to unfreeze it. I just want to put the money into a good IRA account before my 60 days are up to get it back into one without penalty. I've got about 20 days left to decide.
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Old 06-18-2012, 11:59 AM   #3
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I don't know what you should do. So nothing I say is meant as advice. But here's a little about how I approach my IRA.

It's an IRA. The R stands for retirement. I have never pulled money out of it. It was never even part of a contingency plan for emergencies, other uses, etc. The advantage it has is tax-deferral which manifests over a long time horizon. Although I am retired and of an age that qualifies me to withdraw without penalty, the only action my IRA gets is an annual partial Roth conversion. I still have a long ways to go through my taxable account before I hit the IRA.

I don't trade stocks (or ETFs). Additionally, I don't view luck as having anything to do with its performance. It isn't a gambling account. Uncertainty, yes, risk, yes. I don't depend on luck, though.

The only times that I have made a change in custodian has been with a direct trustee-to-trustee transfer. I would never have the money sent to me.

I have a long term plan. It is written out in a formal Investment Policy Statement. The portion that is allocated within my IRA is appropriate within the overall plan and policy. There are numerous considerations, not the least of which is tax-efficiency.

I know what all of this means. I don't ask strangers for advice. I rely on decades of experience and learning. I have no doubt about what I am doing. If I did, I would figure it out before I made any moves.

This is just me, though. Everybody is different and opinions abound, as you no doubt know and will see here.
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Old 06-18-2012, 12:09 PM   #4
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I would suggest the Vanguard Target Retirement 2045 fund which is 90% stocks and 10% bonds and has a .19% expense ratio. Over the long run stocks have historically been a good investment and will likely continue to be. Don't fret about the markets gyrations or trying to time the market.
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Old 06-18-2012, 12:45 PM   #5
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Many people learn about investing, then create a PLAN. The PLAN usually deals with ALL their accounts such as 401(k), traditional IRA, Roth IRA, taxable account. They build a PORTFOLIO that follows their PLAN. That might mean they start with the limited choices in a 401(k) to start to fulfill the PLAN, then the IRA gets one or more funds that completes the PLAN.

Tell us about your PLAN and how your 401(k) is invested, then we can tell you about your IRA.
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Old 06-18-2012, 01:21 PM   #6
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Originally Posted by pb4uski View Post
I would suggest the Vanguard Target Retirement 2045 fund which is 90% stocks and 10% bonds and has a .19% expense ratio. Over the long run stocks have historically been a good investment and will likely continue to be. Don't fret about the markets gyrations or trying to time the market.
+1

This is the simplest thing you can do. Start your account and Vanguard and try it. You can just put the minimum $1000 in to start and add $1000 per quarter to get the rest in. Then forget about it, other than adding more as you can. You can move to something different later when you're ready to try something more complex. If it still seems too scary, try an earlier target date to get more bonds and less volatility.
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Old 06-19-2012, 05:16 AM   #7
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Many people learn about investing, then create a PLAN. The PLAN usually deals with ALL their accounts such as 401(k), traditional IRA, Roth IRA, taxable account. They build a PORTFOLIO that follows their PLAN. That might mean they start with the limited choices in a 401(k) to start to fulfill the PLAN, then the IRA gets one or more funds that completes the PLAN.

Tell us about your PLAN and how your 401(k) is invested, then we can tell you about your IRA.
I know this will sound dumb. But I don't have a 401k. I was just self-employed last year and had a pretty decent year. Both the year before last year and this year I've been out of work. So really I just have this $5,000 and I don't have any 401(k). I just simply would like to keep the $5,000 of an IRA somewhere good so at least it's getting as good and as moderately less risky of returns that's available in the current economic climate.

I just opened the IRA with ING Direct. But I didn't choose them for any particular reason. They just happened to be my bank. So I'm just wondering what better options and investments are out there for my pitiful little $5,000.

Starting to get some great ideas here. Thanks everyone!
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Old 06-19-2012, 05:26 AM   #8
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You are looking for "best returns". Best guaranteed returns are about 1% annually.

If you invest in stocks, then there are no guarantees and one could lose 50% of their money relatively easily.

So it is not clear to me what you are trying to accomplish. I suggest you read some books. I see you have posted at bogleheads and you have been asked to read some things there as well.
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Old 06-19-2012, 05:37 AM   #9
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Thanks for the head's up. I just wanted to make sure I wasn't missing something. It seemed like from my reading that 1% is the average right now. I remember back in 2004 it was much higher.

I also know what you're talking about with the risk in stocks. I lost a ton of money in 2010 when I tried my hand at it (and lost).
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Old 06-19-2012, 10:00 AM   #10
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sum, welcome. I'm sure it seems overwhelming to know what to do with this first "seed" of your retirement savings. However, as others have pointed out, you may benefit from a back-to-basics approach to your finances. You mentioned being out of work, I'd say that you may find an emergency fund to be in your best interests to begin with, then once you have a steady income, begin savings in earnest for retirement.
For basic information on getting your financial "house" in order and how to prioritize your savings and investing goals, I'd recommend Dave Ramsey's books. For more information on investing in general, you can take a look at the pretty comprehensive list here: An updated FIRE recommended reading list (with a military twist)

I also like Andrew Tobias' The only Investment Guide You'll Ever Need, and Carl Richard's The Behavior Gap.

Only when you know what your goals are, short and long term, will you know what to do with this money. If it is needed for possible emergencies, or needs coming up within 3-5 years, then leave it in cash.
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Old 06-19-2012, 11:38 AM   #11
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Quote:
Originally Posted by sumofable View Post
I know this will sound dumb. But I don't have a 401k. I was just self-employed last year and had a pretty decent year. Both the year before last year and this year I've been out of work. So really I just have this $5,000 and I don't have any 401(k). I just simply would like to keep the $5,000 of an IRA somewhere good so at least it's getting as good and as moderately less risky of returns that's available in the current economic climate.

I just opened the IRA with ING Direct. But I didn't choose them for any particular reason. They just happened to be my bank. So I'm just wondering what better options and investments are out there for my pitiful little $5,000.

Starting to get some great ideas here. Thanks everyone!
Investigate Individual (Solo) 401k's. They're for the self-employed and relatively easy to set up via any of the major brokerages. Won't do much good if you're not making anything though. A Roth IRA might also be more suitable for future contributions since you can withdraw contributions penalty free. Might come in handy with an uncertain cash flow.

You should also probably convert that IRA to a Roth IRA while you are at it if your income stays low enough this year to keep you in the lowest tax brackets. That way there's no taxes at all in the future (barring tax changes!)

Call Vanguard. They should be able to help you transfer the IRA from ING. Slowly transition from cash to Target Retirement 2045. Remember you're only 31. It doesn't matter if the value goes up and down until you're ready to start withdrawals. Look at the performance of T.R. 2045 (VTIVX) during 2010. Did it do better than you did? If it looks too risky for you try 2035, 2035, 2015, or even T.R. Retirement Income (VTINX). If you stick with just cash you risk losing out to inflation, though maybe not a whole lot during the next few years.
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Old 06-19-2012, 12:14 PM   #12
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The OP needs a retirement plan for the self-unemployed.
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