This year I'll have 2 years worth of contributions in my Roth IRA account, which is a rather small number to be investing in. After poking around and doing a bit of reading on my own, it seems with that little money and with the current uncertainty in the market right now that I've narrowed my options down to two seperate areas: Cash Investments (CDs in my case) and Index Funds.
What I'm not sure is how to allocate these funds. I'd like to be fairly aggressive (22 yrs old) but I don't want to just flush my money away. I'm not sure if I have enough money to bother diversifying between Large Mid and Small Cap funds, (perhaps some foreign or Vangauards Total Stock - Anyone?), or whether i need to pick one area, invest, and add in more areas as I increase contributions. CDs are obviously less risky and I'm considering them because I'm not sure it is appropriate to invest now with as little money as I have.
I'm sure there are other people here in the same position as me, and any advice would be great!
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silam said:This year I'll have 2 years worth of contributions in my Roth IRA account, which is a rather small number to be investing in. After poking around and doing a bit of reading on my own, it seems with that little money and with the current uncertainty in the market right now that I've narrowed my options down to two seperate areas: Cash Investments (CDs in my case) and Index Funds.
What I'm not sure is how to allocate these funds. I'd like to be fairly aggressive (22 yrs old) but I don't want to just flush my money away. I'm not sure if I have enough money to bother diversifying between Large Mid and Small Cap funds, (perhaps some foreign or Vangauards Total Stock - Anyone?), or whether i need to pick one area, invest, and add in more areas as I increase contributions. CDs are obviously less risky and I'm considering them because I'm not sure it is appropriate to invest now with as little money as I have.
I'm sure there are other people here in the same position as me, and any advice would be great!
You're 22 years old. Go to town with the money. Take chances. You have 40 years to make up for it if you made a mistake.
I started my first investment account when I was around 22. It was around the time after the entire dot com market blew up. I took $2000 and dumped it into stocks that I thought was trading very low that had little to no chance of shuttering. Over the course of the 4 1/2 years, I've turned that amount into $20K. But even more important that that, the education I've gained in trading for myself is paying dividends.
I don't believe anyone in their early 20s should be investing in CDs. (Caveat: Unless they are going to use the money to buy a house or major investment in the short term) The market has been gaining 10+% year after year. The current market condition is very similar to the time when I first started investing. There are a lot of buying opportunities at this point. Look around.
The small amount that you may lose now will be far less than the amount of knowledge that you gain for when you're managing a big account.
That's my two cents. Obviously other people have their opinions.
If you view your Roth IRA as a retirement account, you're looking at an investment time frame of 30-40 years.
With that kind of time frame, you're right to look for an aggressive investment.
I don't know how much money you have, but if you have enough to meet minimum investment for a mutual fund at vanguard or fidelity (which is around $2500 I think) - I think you should invest it all in one of them to start. Next year, invest in a different asset class, until you have a more diverse portfolio.
Some ideas: Domestic Small Cap Index Funds (Growth, Value, or Blended) Emerging Markets Energy/Utilities Healthcare
I am almost twice as old as you ... just having the time of my life ever since I mastered options trading.
I just pentupled (Yes 5X) my Roth IRA account balance of $5000 in 3 months ... now at 26K and growing by stock options trading ... this the exchange traded options - Calls and Puts. By playing spreads i.e. buy one and sell another, you can drastically reduce risks involved. It comes with experience and practice like everything else. I learned the trade over 3 years by playing small amounts first, falling flat on my face, then getting up and trying again. In addition to the IRA account, I will be closing the first 6 figure gain month tomorrow if all goes well in my overall portfolio.
I wish I'd gotten started when I was younger though I am not sure if I'dve been equally successful considering the priorities at that time and the patience and perseverance that develops only with age. You could start with "small" amounts and build up as well but there is a greater than 50% probability that you will loose money in the first year or two.
ThinkorSwim is broker that offers IRA options trading. They also have a "paper money" tool that allows you to trade with .... you guessed it .... virtual money. You can use that to see how well you fare in your trades before you put in real money.
Schaffer's research, Yahoo Finance, TheStreet.com are good places to learn about options.
www.philstockworld.com, TheStreet.com, Barron's websites have sample options plays that you can try out.
dairymtu said:i put mine in vanguard target retirement. where does this fall? aggressive i presume since stocks get less as retirement draws closer.Same here, every year I buy $4000 of VTTHX in my Roth IRA, and I forget about it. It's aggressive right now (~90% equities), it will automatically become more conservative as time goes on.
jayK said:dairymtu said:i put mine in vanguard target retirement. where does this fall? aggressive i presume since stocks get less as retirement draws closer.Same here, every year I buy $4000 of VTTHX in my Roth IRA, and I forget about it. It's aggressive right now (~90% equities), it will automatically become more conservative as time goes on.
Another suggestion: invest in the fastest growing international mutual funds, i.e., China, India, Korea, and Latin America funds. Try Pacific/Asia ex-Japan and Latin America
Just keep reading the international news, sell the funds if the economy goes bad.
Let the pros do it for you by funds. otherwise, pick up large cap stocks. you don't want to lose your money in the retirement account. if you want to play aggressively, play it with a regular brokerage account.
Kikkoman said: account balance of $5000 in 3 months ... now at 26K and growing ...... I will be closing the first 6 figure gain month tomorrow if all goes well in my overall portfolio. Shenanigans. [Sesame Street voice] One of these things is not like the other. One of these things doesn't belong. [\Sesame Street voice]
jamesave said:Let the pros do it for you by funds. otherwise, pick up large cap stocks. you don't want to lose your money in the retirement account. if you want to play aggressively, play it with a regular brokerage account.
I disagree with this sentiment. He's 22 years old. Even if he REALLY messes up, he has plenty of time to make up for it.
Secondly, I do all my aggressive short term trading in my ROTH account because there are no taxes. I don't want to have to pay for short term capital gain if I traded in my regular brokerage account.
Thirdly, you can't get this type of education cheaper and anywhere else. I hate the idea of people giving a ton of money to some fund manager and not really knowing what the fund managers are doing with it.
tazzy531 said:You're 22 years old. Go to town with the money. Take chances. You have 40 years to make up for it if you made a mistake.
I agree. Hell, you might as well cash out your contributions, drive to Vegas, and bet it all on black.
Or you could do the intelligent thing, and invest the money in a target retirement fund or index fund until you've amassed enough to allocate among separate funds.
tazzy531 said:jamesave said:Let the pros do it for you by funds. otherwise, pick up large cap stocks. you don't want to lose your money in the retirement account. if you want to play aggressively, play it with a regular brokerage account.
I disagree with this sentiment. He's 22 years old. Even if he REALLY messes up, he has plenty of time to make up for it.
But what if he decides that investing is a crapshoot, and he stops contributing at all.
With 2 years of contributions (~8K), it's a little hard to diversify because to meet most minimums you'd have to come up with $2-3K. But you could use one of the Balanced Funds/Indexes or a Target Retirement to form the core of your holdings, then use what's left to add more risk wherever you want. For example 5K to the Balanced Index, and $3K to a Int'l Index. It's not exactly ideal, but after you add your 3rd year, you could reweight pretty easily by adding the balanced index.
Or just get one of the fund-of-funds until you've accumulated ~$15-20K and can diversify yourself. It would give you another year or 2 to learn and get comfortable with investing.
I used to have an IRA with Vanguard and the minimum for investing in their funds within an IRA account was only $1k per fund, rather than the standard $3k for a non-IRA. So diversification with $8k isn't impossible. Alternatively, you could choose to have a brokerage account within your IRA and buy ETFs rather than mutual funds - then there is no minimum.
A target retirement fund isn't a bad place to start while you're still learning about investing and determining an allocation that makes sense for you. OP, I'd suggest that right now either a target retirement fund or a total market index fund should form the core of your investment. You could use contributions in future years to add in small cap and international holdings, if you choose.
+1 vote for Vanguard target retirement funds. Sign up for electronic statements and they waive the "low balance" $10 fee. The expense ratio is only 0.21% for an entire balanced, managed, diversified portfolio.
kamalktk said:Kikkoman said: account balance of $5000 in 3 months ... now at 26K and growing ...... I will be closing the first 6 figure gain month tomorrow if all goes well in my overall portfolio. Shenanigans. [Sesame Street voice] One of these things is not like the other. One of these things doesn't belong. [Sesame Street voice]
Perhaps you don't understand some of these words ... 26K is in the ROTH account ... reference to the larger gain is in the OVERALL portfolio.
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