Hello from North Dakota

[Tykimeister]

Hi, my name is Ty and I am a college student at Minot State University in Minot, North Dakota. My roommate and his girlfriend have opened roth IRA's and I have been looking into starting one also. I have a few questions to ask so I figured I would ask around on the boards. I'm eager to see what kind of advice I can get on the forums.
Thanks,
Ty

 

[Sarah in SC]

Welcome! Glad to have you learning about investing while still in college. The Roth is a great idea for young savers, and is an easy way to start on the path.

 

[unclemick]

Welcome. Since nobody listen's to me - I'll give you this advice which you are free to ignore. Everybody else does.

1. Don't read books or study investment advice.

2. Act on faith - buy Vanguard Target Retirement 2050(assuming you are under 25) and dollar cost average until you can't stand it anymore.

If you are male and healthy this will probably prove impossible - it's a hormone thing. True grit would be to buy Vanguard TSM in Roth for thirty years and do your day job.

But we all know that's impossible. My nephew lasted about ten years before he cracked and read Four Pillars - but he is career military and gets to to fly expensive taxpayer toys for some of his jollies.

heh heh heh - And of course when you are an old phart - there is Pssst Wellesley or something like it.

 

[REWahoo]

Welcome. Since nobody listen's to me - I'll give you this advice which you are free to ignore. Everybody else does.

...for obvious reasons.

Ty, pay absolutely no attention to the old guy in the rusty pickup wearing wrinkled Dickies. He's suffering from Katrina abuse and self-inflicted financial deprivation resulting in questionable judgment - like believing the Saints could make it to the Superbowl.

 

[unclemick]

...for obvious reasons.

Ty, pay absolutely no attention to the old guy in the rusty pickup wearing wrinkled Dickies. He's suffering from Katrina abuse and self-inflicted financial deprivation resulting in questionable judgment - like believing the Saints could make it to the Superbowl.

AND THEY LOST TO TEXAS!!

Houston even - in the Superdome.



heh heh heh - well it's only preseason. Right?

 

[ERD50]

The Roth is a great idea for young savers, and is an easy way to start on the path.

Roths do seem very attractive for young savers. They are probably still in a lower bracket, so the tax write-off of a Trad IRA is not that big a deal, and the lifetime of no taxes on the Roth will really add up (assuming no rule changes).

However...

I'm wondering if this is the best use of a young person's money? I'm thinking about my son, and if I should suggest that he do a Roth this year. He is just starting out, maybe it is better to save that money for an eventual down-payment on a house? Would the savings from no PMI and a lower rate be better than a Roth? That savings would make it easier to fund the Roth a bit later. And right now, he is really in the process of building up an emergency fund, and it wouldn't be any big surprise if that got eaten up if he had to replace his 10 YO car, which would have him starting over again on the fund.

I guess I'm just wondering if it isn't best to get enough liquid cash saved for these things, before starting to fund the Roth? Obviously, you don't want to put it off too long, the sooner the better - maybe just not 'too soon'?

-ERD50

 

[Sarah in SC]

ERD, those are good points, I guess for your son, my first thing would be an emergency fund, enough to pickup a cheap car, like $5k. Then, depending on his time horizon for the house, start saving for the down payment if it is imminent. But, I tend towards answering from the behavioral finance side of the equation, and if the house is not a top priority within 1-3 years, then he should put money in the Roth (as well as any employer sponsored plan that has a match). I know that in my household, intensity is everything with savings/investing. If I have clear short term goals, I can pile up money, but if the goal is at all hazy, then it loses it's glamour next to more immediate wants.

 

[ERD50]

Sarah in NC - yes, I did also think about the 'behavioral' aspect of it. That side of me says just start putting it away in the Roth to get used to it. Form good habits.

I think you are right, get the emergency fund set, then see what timing on a house might look like. If it is out a ways (likely), some % to a ROTH would probably be a good habit to start, increase as more cash flow becomes available. Which means prioritizing the Roth, or it will never be 'available'

Of course, I can only explain the pros/cons, it's up to him to decide what to do. So far he's done pretty well with that. Doing the ER thing has probably given him the impression I know *something* about personal finance. Let's hope he's right!

-ERD50

 

[Westernskies]

Investing at your age should be like voting in a Zimbabwean election- do it early and often.

Put as much money away as early as you can. Everyone has different ideas about how and where to put it, but no one on this board will tell you they wish they had waited until thery were older to start investing. Every little bit helps. Get in the habit of putting something aside on a regular basis. You will be amazed at how quickly your net worth grows when your mindset switches from spending to saving.

I wish I had followed my own advice at your age.

 

[HornedToad10]

Of course, I can only explain the pros/cons, it's up to him to decide what to do. So far he's done pretty well with that. Doing the ER thing has probably given him the impression I know *something* about personal finance. Let's hope he's right!

-ERD50

I'd treat the Roth like the house savings if needed. He can always pull out his contribution and up to 10k for first time homebuyer.