Good Investments Vol. $5,ooo (Goal orientated need to read)

[sgs mm]

Originally Posted by JordanFiend85

Originally Posted by Dirtylicious

I don't see how setting yourself up early so that you don't have to worry about retirement is a "bad idea"

but hell..that's just me.

He's 18...He can afford to wait on an IRA (401K-Roth IRA, or Roth401K) for a few more years. He would be better off with a more aggressive strategy.

IMO you are Wrong and this is why ... You want to be more aggresive with a long term inverstment do to the fact that if you take a big hit you havemore than enough time to make up. If you want to be aggresive in a short tem investment and you take a big hit it will be impossible to make it up.

Also to add to your 1st statement, you can also pull money from your ROTH IRA at anytime, just as long as is the money he has put into it, not the moneygained.

For the ones that asked the ROTH IRA IMO is better because you are putting money in after it being tax, therefore at 59 you will have no penalties or tax topay on either the money invested or the money earn.

Traditional IRA will not tax you up front however you will have to pay taxes on everthing once you are ready to pull out.

Also, for those that just have money in their savings and hate taking risk I suggest Money Market accounts or 6mo-1yr cd's.

P. S. If I had to take advice from someone that posted in this thread it will most def be Dirty. The man is on point on everything and seems very knowledgeble.In addition he is giving you advice not for the moment but for your future. It's a shame what I see everyday, old people still working because they cantget and SS check until age of 66. Man invest now, the yonger the better. I can max out my ROTH IRA now (5k) a year till im 59 (30 now) and I still wont makehalf of what you can make if you start investing now till you 50 at a moddest 1500 a year.

 

[pullupj8]

He's 18...He can afford to wait on an IRA (401K-Roth IRA, or Roth401K) for a few more years. He would be better off with a more aggressive strategy.
You can have an aggressive portfolio inside a Roth IRA. You can go 100% Total Stock Market index if you want. Or your allocate all the funds inyour IRA in a mutual fund that invests in African and Middle-Eastern stocks. Very high-risk, but also high-yield. Not a sound investment portfolio by anymeans, but it illustraes my point that you can be as aggressive as you want. Shoot, I wish I had started a Roth when I was 18. If only I knew then what I knownow! I didn't start until I was 25 (27 now). I'm still kicking myself for wasting the money on silly stuff that I hardly use today.

 

[dirtylicious]

Shoot, I wish I had started a Roth when I was 18. If only I knew then what I know now!
so true so true.

as for what my allocations are......I'd have to check..but I do have Vanguard account

 

[jtothadub]

i just bought a gang of Etrade (ETFC) and Jamba Juice (JMBA).

it came to me in a dream, and I hopped on it.

nah but really, i think both are going to jump immensely.

 

[jesusinjordans]

Originally Posted by Dirtylicious

you're assuming 10% return on your entire portfolio every year. Not unless you're in just the "right" funds that will rarely happen.

I can assume this b/c if you use an index fund...you can assume this. year to year....that may change..but over a 10-20-30 yr period... 10% growth can be easily assumed

I got an 70% return on part of my portfolio I was using for 3-7 day in and out trades during earnings season
so then that's probably a 30% return after you factor in Cap Gains... not worth it in my book.

I don't deny your strategy... I just like my growth tax free and un-risky

Yup its should average out over time, but it sucks seeing your retirement going down the drain during rough spots like right now.

As far as capital gains tax, I'm in a pretty low bracket since I have no regular job, I pay 15% on the profit of my short term sales.
But as mentioned before, if you don't have the time to learn/manage, go long w/ some top rated funds.

 

[dunknforce]

wow you guys. That's a overload. This is one reason why I love this community.

I am looking into finances in College, but Business Administration is what I pursue. This is great stuff. I think I am going to print off page 4 completely.I am sure this will need time to sink in, and master, but like all of you swear by, younger is better in all cases. I am going to put off buying shoes, eventhough I am a shoe head. I will pick up the Packs later on in life, since I still might grow

What books have you read, that you think I should read? Jumpman, you sounded like you had read a few good ones.... if anyone can help me to the right books, Iam a new member to Barnes and nobles. not to mention Half price book store is like a second home.
I did get stock brokering for dummies when i was 17. Never finished reading it tho, i will be sure to over thesummer.

I now understand I can only donate to my Roth IRA what I have made in the current year, last year was about 2.5K, This year I am being started at25hours/2weeks min. @ $10.... so I should get about $5K after taxes, maybe a lil more after this year....

From what i see it seems logical to start with a Roth IRA just to have a #1 investment.... No doubt I can get into Index funds #2 (investment) and Stocks#3(investment), 401K #4(investment)..... Is there many more investments, then just this that a "portfolio" can contain????

there was also something about royalty and something or another on page 2 or 3, buying them or something???? not sure, sounded like it might be rewarding...But i stand with Dirty and his advice on steady/tax-free investments

My goal is to be sitting on a mound of compouned cash by the time I am 25, about 6 years, and really start to make a Goal for in 10 yrs. Realisically, Ithink I can save $20,000 in 10 years. I am not dumb and will not be buying a new car, or moving out of my parents house, bc all that will save my funds in thelong run. And Family is the most perfect example of community in Nature, atleast it SHOULD be.

Cjmoney... you seem very professional, like maybe you major in finances, as does dirty. If you or someone lese could PM me just to get the ideas betterformulated in my mind. i would really appreciate any kind of Intelligence you have to drop.

anyone can PM me, i mean feel free as long as its informative, and positive in nature

THANKS NT FAMILY!!!!


Make it a Great day!!!

Blessings

 

[ady2glude707]

Why does everyone seem to have their roth with Vanguard? I see a lot of Fidelity ads on tv with their "no maintenance fee" promotions. Can anyoneelaborate on the company to go with for my Roth IRA?

 

[squalie413]

i would buy a ballin chain

 

[lazyj10]

My goal is to be sitting on a mound of compouned cash by the time I am 25, about 6 years, and really start to make a Goal for in 10 yrs. Realisically, I think I can save $20,000 in 10 years. I am not dumb and will not be buying a new car, or moving out of my parents house, bc all that will save my funds in the long run. And Family is the most perfect example of community in Nature, atleast it SHOULD be.
In that case, you're setting the bar too, too low. $20k in 10 years? Depending on where you live (statewise) no reason why you can'tsave that in less than 2.

 

[dunknforce]

I am in Wisconsin, work part time, and go to school full time....

Saving $20K in 2 years sounds a bit of a task....

Becomming Networth 20K in 2 years however doesn't sound like a difficult task.

 

[jordanfiend85]

Originally Posted by SGS MM

Originally Posted by JordanFiend85

Originally Posted by Dirtylicious

I don't see how setting yourself up early so that you don't have to worry about retirement is a "bad idea"

but hell..that's just me.

He's 18...He can afford to wait on an IRA (401K-Roth IRA, or Roth401K) for a few more years. He would be better off with a more aggressive strategy.

IMO you are Wrong and this is why ... You want to be more aggresive with a long term inverstment do to the fact that if you take a big hit you have more than enough time to make up. If you want to be aggresive in a short tem investment and you take a big hit it will be impossible to make it up.

Also to add to your 1st statement, you can also pull money from your ROTH IRA at anytime, just as long as is the money he has put into it, not the money gained.

For the ones that asked the ROTH IRA IMO is better because you are putting money in after it being tax, therefore at 59 you will have no penalties or tax to pay on either the money invested or the money earn.

Traditional IRA will not tax you up front however you will have to pay taxes on everthing once you are ready to pull out.

Also, for those that just have money in their savings and hate taking risk I suggest Money Market accounts or 6mo-1yr cd's.

P. S. If I had to take advice from someone that posted in this thread it will most def be Dirty. The man is on point on everything and seems very knowledgeble. In addition he is giving you advice not for the moment but for your future. It's a shame what I see everyday, old people still working because they cant get and SS check until age of 66. Man invest now, the yonger the better. I can max out my ROTH IRA now (5k) a year till im 59 (30 now) and I still wont make half of what you can make if you start investing now till you 50 at a moddest 1500 a year.

I'm going to address this paragraph by paragraph. I never once specified his investment horizon. I'm not sure how long he plans to hold theinvestment. However, I'll tell you why I suggest a more aggressive strategy. If he's willing to do the research he can find companies that have highgrowth potential or are undervalued. I can think of a Brazilian and Nigerian petroleum companies who meet this criteria. It goes without saying that there is agreater risk but for that risk the reward is tremendous. Even better if he can find brokers in those countries because the gains on the investment are hardlytaxed if at all. If you want to be safe. then fine.

For those of you thinking that ocntributing to a Roth IRA is going to have you set for life or you're retiring early.

..LOL. If you want to retire early and live comfortably then you're going toneed a lot more than a Roth IRA. By my estimates if you want to live comfortably lets say 100K a year (which will probably be chump change in the year 2050 dueto inflation) your going to need at least 3-4 million in your Roth IRA. If you want to live the typical NT'er lifestyle even more than that. This is alsofactoring in that SS will not be available then. He's young he can afford ot blow 5K on an aggressive mix of stocks and bonds. If I were him honestlyI'd do research and get a mock portfolio and see how you do. Nobody is getting rich off of a Roth IRA.
Using your own numbers and assuming a 10% rate ofreturn you will have less than a million by the time you're. You figure with inflation thats not going to be as much as it is now, healthcare costs,vacations, you're not really talking about a lot of money. You figure people will be living to close to 85+ by then and you run out of money by the timeyou're in you're early 70's.

For those of you assuming that Roth IRA's will not be taxed by the time you come out dont be so sure.
1. We know that tax rates will be a lot higher in the future
2. We have the war, national healthcare, and Baby Boomers all coming up
3. The American tax base could potentially be smaller in the next 40 years.
4. We're going to need tax revenue to pay for all of this
5. Where is all that money going to come from. I would expect some change concerning Roth IRA's over the next few decades.

You cannot pull money out from your ROTH IRA at anytime without penalty. If you want to take a 10% hit then fine. The only time you can take it out andavoid a penalty is if you're buying home

 

[jtothadub]

probably a dumb question, but what's the difference between a 401k, like the one i have with my place of employment, and a ROTH IRA?

is it the pretax/posttax deductions, or the p/e ratio?

 

[drjordanfreak88]

My only qualm about getting me an IRA is the direction the U.S. is headed in. What if some enron type fiasco goes down where most/all the money in accountslike IRAs are used up for government spending (wars, etc.) and all our money is squandered for the most part? These IRA accounts are only insured up to $100k.It makes sense for financial institutions to have a big push for retirement accounts like IRAs so the country will have money, seeing that the country is"broke" right now. I'd personally invest in something else that has value in any country. Anybody got any info pertaining to global investments?

 

[lazyj10]

I am in Wisconsin, work part time, and go to school full time....

Saving $20K in 2 years sounds a bit of a task....

Becomming Networth 20K in 2 years however doesn't sound like a difficult task.
True- valid point.
Then save what you can muster while in school.
After school, based on what was said, you can save $20k if you really grind. Sacrifice the new car (most college grads, including myself, fall for), live withthe folks, etc. Then its possible.

My only qualm about getting me an IRA is the direction the U.S. is headed in. What if some enron type fiasco goes down where most/all the money in accounts like IRAs are used up for government spending (wars, etc.) and all our money is squandered for the most part? These IRA accounts are only insured up to $100k. It makes sense for financial institutions to have a big push for retirement accounts like IRAs so the country will have money, seeing that the country is "broke" right now. I'd personally invest in something else that has value in any country. Anybody got any info pertaining to global investments?
You can get funds that invest globally. Asia/Pacific Rim, Europe, Emerging markets, etc.
Only insured up to 100k? Does that even apply to you? I know it doesn't matter to me.
Enron fiasco had to do with bad accounting, lack of standards, and lack of full disclosure. If that happens again, funds should be well diversified that itwouldn't matter. Maybe your portfolio would take a short term hit, but long term it'd be fine.
For instance one of my funds is tech loaded, so as GOOG drops, I see it in the share price of the fund.

How is this money going to be used for gov't spending? I don't quite follow your train of thought. What makes you think our country is"broke", we may not be flourishing, but to say broke is probably the wrong adjective.

There are different options for all types of investments to help soothe your risk mentality.

 

[dunknforce]

Facebook Has a modulator or something so you can do a MOCK porfolio btw, Jordanfiend had told me about

 

[xxcoldsunxx]

greatest thread ever

LOL Word...
Sadly, i am truly a financial idiot...
Around the age of 18, my idea of a good investment was getting "One to rock, and one to keep Deadstock"

I'm a bit older now.. I think i need to stop blowing my money on cheeseburgers and atleast kinda look towards the future... I mean $5000 comes to me alotfaster now then it did when i was 18...
Thanks for all the info guys...
-Sun

 

[dc sounds]

although similar..they are different. 401k's are funded by pre-tax dollars, thus you decrease your tax bracket, while investing for your retirement. When you withdraw, you will get taxed.
Roth IRA are funded by after tax dollars...when you withdraw, you do not get taxed

In essence...the growth in your 401k is taxed...the growth in your Roth is tax free.



You have to factor in the fact that your tax bracket now is a lot higher than it will be when you are 59. So the 401k has the advantage over the Roth in thatsense because your tax shield now (contributions to 401k decreasing your taxable income) is a lot better than your tax shields in the Roth.

Put it this way, right now, if you are making $55K for example, your marginal tax bracket will be around 40%. If you invest $5K in a 401K now, which is fundedwith pre tax dollars, your tax shield towards your taxable income would be $5K x 40% = TAX SAVINGS of $2000, which means $2000 more you can invest in your fundthat will earn interest compounded on each dollar.

Of course, as opposed to a Roth IRA, when you finally get to pull enjoy the investment at the age of 59, you WILL GET taxed here, so basically, with a 401K,you are deferring paying taxes on these contributions.

But here's the catch, at 59 years old, I'm expecting to be RETIRED by then, meaning, my income will be LOW, and I will be in a very low tax bracket, sowhen I pull out the funds in my 401K that had been vesting for nearly 40 years, I will get taxed on it at a VERY VERY VERY LOW bracket. Which is a HUGE SAVINGSfrom the TAX SHIELD. And get this, any capital gain on the investment of your 401K, will get taxed at the lower capital gains rate.

So, basically, you get taxed A LOT LESS when you are 59 as opposed to when youare 25 or 30, so deferring the tax till later not only allows you to invest MORE money from pretax dollars that will earn interest compounded you will gettaxed a lot less when you pull out when you are retired. Not to mention, dependingo on your employer, a certain percentage of your contributions will getmatched by the employer. THATS FREE MONEY! Basically, my employer will match 1/2 of my first 6% of contributions to my 401K, fully vesting at 3 years, THATSFREE MONEY.


Now, back to the Roth, when you contribute to this fund, you have to contribute AFTER tax dollars, which, depending on your income, lets say you are like mostother 20 somethings out of college, you are going to be paying around 40% tax bracket, so if you want to contribute $5K annualy, after taxes you will reallyonly be contributing $3000, thats $2000 less that earns compounded interest on the return. Which adds up to a lot by the time you turn 59.

Basically, if you are like most other 20 somethings out of college, earning enough to be in the 40% tax bracket, you would be a lot smarter to defer gettingtaxed when you are 59 (a la 401K) than getting taxed now (a la Roth.)

So if that sounds like your situation, 401K >>> Roth IRA.

 

[dunknforce]

Great post DC sounds, Roth still is still appealing to me. But thanks for the indepth look at the 401k

Much appreciated!

 

[shch]

Why can't we have more threads like this here??? Right now, a Roth IRA sounds a bit more suited for me than a 401k plan. My company's matching 50% ofwhat I put into it for now, so I'm going to put money into both. Is that a better thing to do or should I just put the most money I can into an accountthat gives me back the most money?? Any help on this will be much appreciated.

 

[nycknicks105]

Originally Posted by Dirtylicious

I don't see how setting yourself up early so that you don't have to worry about retirement is a "bad idea"

but hell..that's just me.

exactly what im trying to do...save up now, so when im older I wont have to worry about my finances.

 

[dirtylicious]

so if you want to contribute $5K annualy, after taxes you will really only be contributing $3000, thats $2000 less that earns compounded interest on the return. Which adds up to a lot by the time you turn 59.
I don't follow your logic.

only contributing 3K?...no...the 5K is the dollar figure you put into your Roth...there is no after tax deduction.

Basically, if you are like most other 20 somethings out of college, earning enough to be in the 40% tax bracket, you would be a lot smarter to defer getting taxed when you are 59 (a la 401K) than getting taxed now (a la Roth.)
the thing is....your GROWTH in the Roth is tax free. the growth in your 401k is not.

check it...here's the #'s...

if you put 5K every year from 18 to 59...you will have invested a principle amount of after tax dollars of $215,000...HOWEVER, if you average a 9% return overthose 42 years....your balance becomes ~2.2Million dollars... so that's a difference of ~1.9 million dollars that is non-taxable upon withdrawal.

however...if you had invested that 5K in your 401k you would have what?...reduced your tax bracket by 5K...and the difference in your taxes between brackets isprobably at most 1-2K...multiply that by 42 yrs..that's 84K...so you've saved that...but now that 2.2 million dollars is now taxable upon withdrawal.

always always always invest in your 401k if your employer offers one and matches....but don't discount the Roth b/c it's after tax dollars you'reputting as the initial investment...that TAX FREE growth is what gets you ahead.

 

[dc sounds]

however...if you had invested that 5K in your 401k you would have what?...reduced your tax bracket by 5K...and the difference in your taxes between brackets is probably at most 1-2K...multiply that by 42 yrs..that's 84K...so you've saved that...but now that 2.2 million dollars is now taxable upon withdrawal.


You have to consider this tho Dirty,

the tax bracket difference now and when you are 59. Surely, your tax bracket will be much lower at 59. and the $1.9M in capital gains? That will be taxed atthe lower capital gain rate of 15%. So you are basically deferring your taxes to a period in your life where your bracket is much lower.

Additionally, another thing to consider, how many of you will live to 60 years of age? Probability is that most of us will, some of us won't, there'sno telling what state of health we will be in by that age......My point is, with a 401K, you are receiving that tax benefit shield NOW, while you are young,and cash liquidity is of much more importance than it will be when you are 59. Put it this way, the $2K you are saving now with a 401K tax shield by investing$5K a year, that you are benefiting from NOW while you are young and need capital, can be reinvested in the stock market/property/whatever you want while youare STILL YOUNG.

With the Roth, you defer the benefit of tax free until you are 59, and there is a huge economic opportunity cost you incurr with that. While you receive yourbig tax shielf upon receiving your Roth fund at the old age of 59, with a 401kI would have incurred tax shields as I contributed throughout my life, allowingme more capital throughout my life to reinvest. Factor in the capital reinvested gains from the tax shields I benefited from each and every year with a 401K,you have to reconsider your numbers Dirty.

If you're employer offers good matching contributions, 401K is a no brainer.

 

[lazyj10]

I don't believe that the tax brackets we have currently will be around come my time to retire.
Therefore I'll happily take my tax hit up front, right now and not defer it.
Its just the way I personally have planned.

 

[dunknforce]

Isnt it best to invest in both?

401k sounds good, and the fact some companys match you makes for a great oppurtunity

Roth IRA sounds like a great Idea also. I dont fully comprehend all of what DC sounds is saying.

Isnt it best to invest in both? or should I focus on one instead of both..... I could always max the roth then look to donate to the 401k or w/e

I have some time before I start a 401K because i am not a full time employee.

So a Roth IRA is Ideal for me right now? right



Thanks everyone

 

[been here]

Where can I get a Roth account?

BTW im 19 with around 7000