Putting some money aside

[Tykimeister]

Hello,

I have been putting off starting an IRA for a while because of school loans, emergency fund, and even a little pure lazyness. Here is what I look like.

25 years old. Good health.
Single, never married, no children.
No loans at all.
No rent.
$9,000 emergency funds
Own car. Insurance is minimal.

I have about $4000 right now to kick into some form of investment. My father suggested starting a roth IRA and to do it before taxes are due so they can count for last years income.

I am interested in starting a roth IRA, but I don't know if I should start one at my local Wells Fargo. I've been with Wells Fargo for the past 8 years. Or should I go through another company. Maybe an investment firm that I can later in life use for buying stock, mutual funds, etc. Some suggestions on this matter would be appreciated.

What other options do I have right now that is ideal for my age? I don't plan on touching the money for 30 or more years from now. Are there other investment approaches I should be looking into other than a roth IRA? Or do I need to look into a traditional IRA?

The only other investments I have right now is my retirement from working for the state. They only take out $70 a pay period and don't match anything. I also have some savings bonds, but nothing that will hold me over for very long.

Some advice would be appreciated. Thanks

 

[Aiming_4_55]

I would suggest checking out Vanguard and Fidelity as options for creating/starting an account, both have low expense fee funds. If you are not sure of your investment strategy, start with funding/purchasing a prime money market fund to get your 2011 contribution into a roth ira, assuming you are not in a high tax bracket already. Then I would suggest reading up on some investment books to get a better idea of your asset allocation. There's a list in one of the FAQ or do a quick search on books. Good luck.

 

[Koolau]

My suggestion would be to open a Roth SOME place - even if you can only open one with a certificate of deposit (yuk!). If you go to Vanguard, you may only qualify for a few funds if your Roth is small. I think the Star fund only requires $3000 to open.

I like Roths because they are much more flexible than tIRAs. Be sure to read up on Roths (and other vehicles) before investing. A good place to start reading about Roths is Fairmark.com

Best of luck and YMMV.

 

[MichaelB]

Hi Tykimeister. A Roth will have no impact against last year's taxes because it is an after tax IRA, but still may be a good move if your tax rate is low. Vanguard is a great place for IRAs and other investment accounts. They have excellent availability of mutual funds and their own funds are low cost leaders.

 

[donheff]

You don't mention work. Do you have a job? Does it offer a tax deferred account with matching? If so, max that out first.

 

[Midpack]

First, congrats on being smart enough to get started at age 25. I was almost 30 before I got serious about working toward FI, and closer to 40 before really establishing my investing philosophy.

I'd also recommend Vanguard, though Fidelity and Schwab were good to me too. Not that you can't do just fine elsewhere, but others make it easier to get in over your head and waste a lot of money.

It is important that you develop your investing philosophy early on. There is no reason you can't handle your own investing, you don't need an advisor (not ongoing at least). This is still the best list of reading material I know of Investment Books. I wish I'd read these at your age...best of luck.

 

[donheff]

It is important that you develop your investing philosophy early on. This is still the best list of reading material I know of Investment Books. I wish I'd read these at your age...best of luck.

Midpack is right but if you are like me or 70-80% of the population, planning, goals, etc may make you gag at 25. In that case, adopt a simple philosophy, like "push the savings hard so I have lots of options in the future" (25% or more of income if you can discipline yourself). Most (but not all) of us here will advise you to select index mutual funds (heavy on equities now - e.g. 80% stocks for the long haul ahead of you). And leave it the F alone as it goes up and down - no panic sales, no market timing. Bank as much of your raises as you can. In ten years you will have enough to motivate you to study up a bit and then you can fine tune. Good luck. I didn't start actively saving for ten years after you. Those ten years could have doubled my portfolio.

 

[Midpack]

Not disagreeing with donheff at all, and I do agree with the investment suggestions he offers. It doesn't have to be complicated at all, simple is good now and later. Indeed many novices and even experienced investors make it more complicated than necesssary.

But knowing what to invest in is easy compared to having the discipline to stay the course when the market and/or economy dive, as they will always do periodically. Coming to grips with "no panic sales, no market timing" only comes from some understanding IMO. Panicking at the worst time is probably the most common and costly mistake novices make, staying the course seems counterintuitive especially when everyone around you is panic selling. I also realize that it may be asking a lot at age 25, but one good read could help, something as simple as Bogle on Investing or The Coffeehouse Investor.

 

[pb4uski]

I highly recommend Vanguard. You could establish a Roth IRA through them and fund it as you can afford to.

donheff is right - when it comes to investing slow and steady wins the race, as long as you save and invest regularly in low cost index funds, have an asset allocation appropriate to your age and rebalance as necessary, your savings (retirement and otherwise) will grow and before you know it you will be FI.

In a sense it is establishing a savings and investing discipline that is sort of on autopilot and then go out an enjoy life - after all you are only 25.

 

[rescueme]

25 years old. No rent.

Uh, something not "normal", IMHO.

What's the story?

 

[arebelspy]

25 years old. No rent.

Uh, something not "normal", IMHO.

What's the story?

Sounds like he's living at home. Something not at all uncommon in that age group this day and age.

 

[Midpack]

Sounds like he's living at home. Something not at all uncommon in that age group this day and age.

Just saw a segment on a morning show about a builder who is building new homes designed for multi-generational families. Sign of the times?

http://www.cbsnews.com/video/watch/?id=7394725n

 

[Keim]

I'll pretty much echo others. Put it in a low cost mutual fund. I suggest a Vanguard target date retirement fund. This will get your small amount of money properly diversified (they'll manage the mix of stocks, bonds, foreign, domestic, etc for you).

Once this years money is safely tucked away, take the time to read a few investment books. Don't forget to regularly add to that money while you are reading! See how close you can come to maxing out that new IRA next year.

Many on this board will suggest learning about indexing. A really short and easy read to learn about this is The Coffee House Investor. If you like what you read and want to go deeper, I suggest both The Four Pillars of Investing (My fav.) and The Bogleheads Guide to Investing.

Good luck! And congratulations on starting so early. My wife and I started at the same time. We are now 40 with a paid off house, no debt, and a tidy sum invested.

 

[easysurfer]

As for opening an IRA or not, Father knows best

Like many here, I like Vanguard and besides a local checking account, have Vanguard for pretty much all my investments.

 

[Major Tom]

Vanguard are good. More important than who you open the IRA (Roth or traditional) with, is actually opening one up. After the tax deadline this year, you will never have another chance to make a contribution to your IRA for 2011 again.

Start contributing to an IRA, and you can worry more about who it is with (and even what it is invested in) later. You have the advantage of time on your side and all those years ahead of you for your investments to grow, with no tax on the gains.

I was a year or two older than you when I opened up my IRA. Not knowing anything about investing, I put the money in a money market fund then wondered why it wasn't growing after a year or two. Kept putting the money in every year though. After a while I wised up and found better investments. At least I had been contributing to the IRA, and the money was in there.

 

[Animorph]

You might also look at E*Trade. They have a nice no-fee mutual fund selection and the minimums are smaller than Fidelity or Vanguard. $4k is more than enough to get started with MF's.

 

[Sirka]

You might also look at E*Trade. They have a nice no-fee mutual fund selection and the minimums are smaller than Fidelity or Vanguard. $4k is more than enough to get started with MF's.

+1
TD Ameritrade also have some No Transaction (NTF) funds, but why not go with Vanguard, if investing in mutual funds.

 

[steelyman]

First, congrats on being smart enough to get started at age 25. I was almost 30 before I got serious about working toward FI, and closer to 40 before really establishing my investing philosophy.

Two thumbs up on this congratulations. I, too, did not get serious about it until about 1994. I wish I had started a lot earlier because back then the limits of what one could contribute to employer tax-advantaged plans (like a 401k or 403b) were pretty low. I started a Roth the first year they became available (1998?) and have never regretted it. I still have that original Roth open at Vanguard because it qualifies me for withdrawals due to the 5-year rule, but will be consolidating at Fidelity in a couple of years.

I'd also recommend Vanguard, though Fidelity and Schwab were good to me too. Not that you can't do just fine elsewhere, but others make it easier to get in over your head and waste a lot of money.

I agree that all are good choices. One thing I have been trying to do is not spread things around. Find a firm you like and work with them; it saves a lot of bookkeeping headaches down the road!

 

[Koolau]

Sounds like he's living at home. Something not at all uncommon in that age group this day and age.

Something I did until I married DW. I did, however, pay rent once I graduated from university. Here in paradise, I find that such living arrangements are the norm rather than the exception due to high living-space costs. As long as it's mutually beneficial, living at home is a good way to jump-start FI. YMMV

 

[jazz4cash]

Scared him off.........

 

[MBAustin]

Just went through this with DD who is newly employed and doing the same thing.

Vanguard STAR and Target Retirement funds have $1000 minimum initial investments, all other funds are at least $3000. Additional investments are $100 minimum for STAR and Target funds, with that reduced to $50 if it is done by auto-investment (the latter info I didn't find on their website but was told it by our Flagship advisor).

 

[Koolau]

Scared him off.........

Probably just polite and waiting for us older folks to stop talking.

 

[Major Tom]

Probably just polite and waiting for us older folks to stop talking.

He might even actually be occupied with something other than the internet.

I've heard that this can happen

 

[Koolau]

He might even actually be occupied with something other than the internet.

I've heard that this can happen

Yeah, especially those folks who w*rk!

 

[2035]

Hello,

I have been putting off starting an IRA for a while because of school loans, emergency fund, and even a little pure lazyness. Here is what I look like.

25 years old. Good health.
Single, never married, no children.
No loans at all.
No rent.
$9,000 emergency funds
Own car. Insurance is minimal.

I have about $4000 right now to kick into some form of investment. My father suggested starting a roth IRA and to do it before taxes are due so they can count for last years income.

I am interested in starting a roth IRA, but I don't know if I should start one at my local Wells Fargo. I've been with Wells Fargo for the past 8 years. Or should I go through another company. Maybe an investment firm that I can later in life use for buying stock, mutual funds, etc. Some suggestions on this matter would be appreciated.

What other options do I have right now that is ideal for my age? I don't plan on touching the money for 30 or more years from now. Are there other investment approaches I should be looking into other than a roth IRA? Or do I need to look into a traditional IRA?

The only other investments I have right now is my retirement from working for the state. They only take out $70 a pay period and don't match anything. I also have some savings bonds, but nothing that will hold me over for very long.

Some advice would be appreciated. Thanks

The Roth IRA is wonderful, not only does it grow tax free, but you can take all of your principle investment out at any time for any reason. I know, I had to take $4000 out of mine (should have had a real emergency, fund I know) a few years after I opened it. I would strongly urge that you open it with a brokerage company and not a bank. I believe Ed Slott (IRA expert) says that you should NEVER EVER EVER have an IRA with a bank...at least during the "accumulation" stages. The fees are high and the choices are low. I have mine with T. Rowe, but most of the biggies would be a good choice (Fidelity, Vanguard, etc.)