I want a Vanguard roth IRA. Is the economy so bad that I should wait?

Question

I've been meaning to get a roth since November '07. I actually signed up for one. I lost $200 in 2 days. I picked aggressive funds so I dunno. I'm 24 and was told I should pick aggressive funds cuz I'm young. But something happened with the transfer from my bank account and my roth got canceled.

Since then, I've been so scared to reopen a roth because of 1) I lost so much money so fast with the canceled roth and 2) the economy is so bad right now and it doesn't look like it is going to get any better.

Any financial pros out there, who're keeping up with the markets, have any insight into how I should invest $4,000?

I don't want to put it into a savings account, but it might be my best bet right now. However, I am hopefully going to start school soon in August and will deplete my bank account to pay for school.


Ack!! Help a damsel in distress! =]

Answer 1

Now wait a minute. How could you have lost $200 on a Roth transfer that did not take place? If you did I would say you have an excellent arbitration case. Something stinks. No you do not want aggressive. No matter how young you are. You want money market for now. This whole thing is getting to be a nightmare. Actually you want a money market that invests in only government paper. T-bills. Everything else is too dangerous. The whole economy is coming undone. This could wind up being the "greater depression"

Answer 2

Hi, Kat,



Your question is not clear, and that probably reflects your real problem.



Will you need that $4000 in August this year to pay for your schooling? If so, then don't put it into any kind of IRA or retirement account. Those are NOT for short term money.



If you don't need the $4000 to pay for school, then go ahead and open up the Roth IRA (and Vanguard is a great company). However, do NOT listen to the traditional advice to be aggressive.



In theory, growth stocks will grow more than other stocks, because they're using all their net profits to build the company. That's why they're popularly known as "growth" stocks.



However, real life tells a different story. Usually stocks that pay dividends do better. The only exceptions are particularly wild bull markets. For example, in 1999 growth stocks did outgrow dividend-paying stocks in market price -- but they lost a lot of that from 2001-2003.



Also, we learned from the early 2000s scandals that net income on a balance sheet is not always what it appears to be.



Dividend paying companies have to come up with real cash. They can't just manipulate figures, as Enron and others did (and many still do).



You don't say what you're doing now. August is still nearly 5 months away. Why not get a job to pay for your school, and also open up the Roth IRA? The sooner you start investing, the better for you in the long run.



However, recognize that your best financial results in a good (and especially bad) economy will come from many things:



Working -- nothing like bringing in a real paycheck with cash to spend and save/invest.



Upgrading your skills -- school, a certification, career classes etc. Whatever will allow you to make more money from the time you spend working in the future.



Staying out of debt -- pay off credit cards and all loans.



Saving and investing -- the more money you put away, and the sooner, the better off you'll be in the long run.



These things will be much more important to you than choosing between one stock and another.

Answer 3

Put together an "asset allocation" that meets your needs & risk tolorence.



Saying you lost $200 means nothing, you need to look at the context by percentage of your assets and performance of the fund vs. its peers. If $200 is 20%.... you've got a problem. If it's 2-5% on a couple of really bad days...... that's just the way it is.



My experiance with the most aggressive Mutual Funds is, over long periods of time;

They may do a little better than a typical Growth Fund, but the losses are a bit easier to handle. Having said that..... your "asset allocation" will be your best tool.



If you're afraid to get into the market right now, set up a dollar cost averaging program with Vanguard. Don't wait for the market to "go up".... it'll happen too fast for you to react quick enough.



Don't take specific suggestions from people on this site. You don't know their qualifications or motives.



Read a couple of good books on Mutual Funds and retiremenet investing. It will pay dividends for you for the rest of your life.

Answer 4

You need a needs analysis. Any reputable investment company should be able to provide this. I would avoid the place that stated you need aggressive because you are young. As a financial advisor there is a requirement to do what is in the best interest of the client. In order to do this they must first assess your risk tolerance. That involves 1. your financial status, 2. your age, 3. your goals or investing objective, 4. time you have to recover from losses and 5. your comfort level with risk.



Age is only one component of risk. As for the economy, there are concerns now with the mortgage situation. The Fed and central banks around the world are trying new tactics to inject liquidity in the markets. It is a new approach and may work. We will have to see.



As for investing, you cannot time the markets. Consistent investing over time utilizes dollar cost averaging so that the average cost per share over time is lower due to buying through price fluctuations.



Things could get worse depending on what happens with the financial sectors. Things could get better. There are a number of unpredictable factors involved.



You want to invest in a diversified portfolio to reduce risk. James OShaugnessy in "What Works on Wall Street" found that a combination of Value and growth strategies balances the portfolio so that when one investment style is not in favor the other usually is.



As for the savings account, that is safe but is at risk of losing purchasing power. If your going to need these funds in August then that is probably a safe place for the funds. I however would put them in a 3 month CD at the bank to get a higher interest rate with safety of principal.

Answer 5

Depending on what your goals are should determine what you should do with the money. You may want to ask about paying for school with your Roth IRA. I think you can use it for that and paying for your first home. In that case, the economy is so bad that you should invest in the stock market. Not fully aggressive (all stock) with such a short term goal. If it is for retirement then definitely, yes. Invest in an all stock IRA. You have a long enough time ahead until retirement that you can endure the market recessions many times before you retire.

Answer 6

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Answer 7

First off...it is never too bad for a Roth IRA. I use E-Trade and love it! Second...what do you want ?? Do you want money quick or do you want to know that in 30 years you will be "well off"?? Me...i prefer to be well off when I retire. With a Roth the key is asking yourself "will i be in a higher tax bracket when I retire?". I will be because I plan on making more money as I grow older. So i pay my taxes now. As far as investing $$....why go high-risk?? Are you in a hurry?? You are 24... let it ride !! Look into low risk, low $$$ stocks (HYBR, RYN, INTC....etc).

I am not a pro....this is just advice from someone who has been there :-)

Answer 8

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Answer 9

Bet on gold. (Just look at what it's done against the dollar in the past year.) Silver isn't bad either. Anything that has intrinsic value (not paper, like stocks) will be doing well against the dollar for a while.

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