PeterY

Hey guys,

I'm 19 and thinking that it's prob better to start investing early. Right not i'm at school (Cornell) but during the summers i have an internship where i'll prob get 6-7K this summer. I'm spending my current balance on another (Audi) so the internship money is all that I have to work with right now. What is the best way to start saving for the long term. I'm not talking savings fund, CD's, more like Mutual Funds, Stocks? Bonds? IRA?( can that even apply to me), just wanted to know what people have as ideas for starting at a younger age.

Thanks

Peter

mt6forlife

S&P500 index fund (vanguard.com) in a Roth IRA.

GreenMonster

If your internship has a 401K plan, get into that. The longer you have money invested in a retirement plan, the more it'll be worth when you retire.

A Roth IRA might apply to you. You can put after tax dollars into a Roth IRA. I started a Roth IRA account years ago because the company I was with at the time didn't have a 401K plan. I still contribute the max to my Roth IRA even tho I'm close to the max on my 401K.

Once you have your 401K or IRA stuff in order, the next plan of business is usually the other stuff you mentioned (Mutual Funds, Stocks, Bonds).

I really wish I'd have thought about retirement investments when I was your age instead of waiting till my 30's.

ric

You can find any number of decent MF's that have very low investment entry limits. An index fund as a "starter" is not a bad idea to start with. As you read more and get into it, you can branch out. Do read the prospectuses closely, and read objective analysis material carefully. A subscription to Morningstar on line may be worth poking at, as it gives you relatively objective commentary about stocks and mutual funds.

I am not a proponent of individual stocks any more (which may get me flamed) unless you have substantial assets to play with or have a sentimental favorite stock you want to invest in because of your convicitons about the business that you are buying. I personally feel that the stock market is significantly challenged by those in it for the investment churn, rather than longterm capital development and accrual. I gave up managing my wife's and my individual investments, some purchased, some inherited, and liquidated the lot and dumped it into large-entry private mutual funds in order to guarantee a specific level of income, which I have succeeded in doing. THAT is not something you need to worry about for some time.

PeterY

Can someone explain what a Roth IRA is, in basic terms. I did some online reading and i'm not quite sure i have the grasp of what it is for.

So i see the max is like 4,000(used to be 3,000)

So that pretty much means that is all the cash i can put into it in 1 fiscal year.
So what do i get out of this. Is this like a CD where i get certain interest rate.
When do i see the returns on this money. I think it has something more to do about retirement right?

Ex) I max it out every year from now 19 till like 40 or 50, what type of money should i be seeing out of this.


Thanks

Peter

jdone

Reasonable choice, but Vanguard Total Stock Market would be even better.

mt6forlife

With a traditional IRA, you take a tax deduction for the dollars you put in it today. The money grows tax free. When you're old and retire, every dollar you take out it taxed as ordinary income in the year you take it out.

With a Roth IRA, you don't take a deduction when you put the money in. The money grows tax exempt and when you retire, every dollar you take out is tax free.

With either, you'll pay a penalty if you take money out before you hit a certain age, around 70.

Now what you invest your IRA money in is up to you. You could stick it in CDs, play the stock market, buy government bonds, whatever. At your age, if you can stick that money away and forget about it, a good equity fund the one of Vanguard's index funds you'd have a nice head start on your retirement. Or if you think you'll want the money before retirement, you can still invest it, just don't tie it up in a retirement account. You'll lose the tax exempt growth, but you'll be able to access it w/o a penalty. Just remember, equities are longer term growth: ie 5-10+ years.

GreenMonster

Here's a calculator:

http://www.dinkytown.net/java/RothIRA.html

GreenMonster

By law, you have to start taking out money from your IRA when you hit 70 1/2 years old, but you can start before that (as early as 59 1/2 years).

I think you can even start receiving distributions from your IRA before 59 1/2 years without penalty... (see 72(t) tax code exemptions)...

http://www.irs.gov/retirement/articl...1413,00.html#6

Here's the IRS's IRA FAQ page:

http://www.irs.gov/retirement/articl...111413,00.html

anothercls

One thing about any Roth IRA contributions you put it, is they are available to be taken out w/o penalty, any gains are subject to taxes and pentalties though.

You may not be able to start certain retirement plans due to your age. Some require a min. age of 21.

Jerky

By the way, good job for starting investments at an early age

Adam_Schwartz

I would think at 19 that you could invest in more aggressive funds. I love index funds, don't get me wrong, but I have learned to be a bit more aggressive since I am under 30. At 19, you would be able to ride out any ebbs and flows of the market. Perhaps invest in some growth funds and some index funds to balance things out. But good job wanting to invest at a young age. Even $50-100/mo at 19 will be a great start. Time is on your side.

Also, other said Vanguard and they have good MFs with very low fees.

I opened a Roth IRA acct with Scottrade so I would have the ability to add individual securities to our acct. They are a good online brokerage firm.

ric

I'd agree with you completely except that this is his very first investment; he's just getting his feet wet. After this first chunk of change, his next investment could be considerably riskier, since he does have decades of risk-based investment time to play out. I just think that the first investment should be a bit on the conservative side, but after that -

here's one financial house's definition of a Roth IRA, there are, of course, dozens more. (I'm not selling atlantic financial)

http://www.atlanticfinancial.com/ira_roth.htm
What is a Roth IRA?

The Roth IRA is a unique, tax-advantaged way for investors to save for retirement. Although contributions are not tax deductible, withdrawals are tax-free - as long as they are made after age 59½ and the account has been in existence for at least five years. This allows your earnings to compound free of taxes with no future income tax consequences. Of course, Roth IRAs may not be suitable for all investors - you'll need to consider your own personal financial situation.

Roth IRA Advantages

Roth IRAs can provide a tax-free source of retirement income. Contributions to a Roth IRA are not deductible, but withdrawals - including any earnings - are generally free from federal income taxes. Roth distributions are tax-free if you begin withdrawals at least five years after establishing the account, and you are at least age 59½ at the time of the withdrawal; or you are using the funds for the purchase of a first home or you are disabled or deceased.
Unlike traditional IRAs, Roth IRAs allow you to make contributions after age 70½.
There are no minimum required distributions with a Roth IRA. Traditional IRAs require minimum distributions starting on April 1 of the year after you reach 70½.

You may contribute up to $2,000 ($4,000 for married couples filing jointly, as long as no more than $2,000 goes into either spouse's IRA annually) or 100 percent of earned income, whichever is less, to a Roth IRA annually. The contribution limit phases out for singles with an AGI of $95,000 to $110,000, and for married couples filing jointly with an AGI of $150,000 to $160,000.

You may convert a traditional IRA to a Roth IRA in any year your AGI doesn't exceed $100,000, provided your tax status is not "married filing separately." However, the amount you convert from a traditional IRA to a Roth IRA is generally considered part of your taxable income for the year of conversion. However, you may incur this penalty if you subsequently withdraw converted funds from the Roth IRA before age 59½ and sooner than five years after establishing your Roth IRA. Your financial professional or tax adviser can provide more detailed information on tax-related issues.

You don't have to choose one type of IRA over the other. You may have both a traditional IRA and a Roth IRA, contributing to either or both whenever you wish. Your total annual contribution to all IRAs may not exceed the lesser of $2,000 or 100 percent of earned income.

Adam_Schwartz

good stuff ric - I am speaking from a perspective of what I now know. So perhaps a nice S&P 500 index fund would be a great way to start for PeterY.

ric

Wish I had started at 19.......................... with something a little less liquid than Bombay Sapphire..........