looking to invest some money (1 Viewer)

[Joseph DeMartino]

Put it in an envelope and send it to me. I'll invest it for you.

PM me for the address.

Later,

Joe

 

[Keith_R]

I've been reading up on the stock market and alot of the investment stuff we've talked about in this thread and some of it is very confusing stuff.

I'm going to talk to a family member w/ numerous investments and get his input as well.I'm thinking I'd be interested in maybe starting an IRA and giving that a little time which would allow to dip my feet in investing, once I'm comfortable with it I'd like to try my hands in individual stocks. I could swing the other way though and just do the stocks, which would a llow me the chance to possibly see great returns but it is also very risky and could end me up in the poor house. I know you can get penalized for taking money out of your IRA, but what happens if I invest a lot of money in stocks and see a huge loss? am I able to pull it out with no penalties or am I screwed? what about on the flip-side, if I see great gains and would like to stop my money before I lose it in a great downfall, can I pull out of the market and still keep my gains or do I lose my gains and get penalized? how does this all work, am I understanding things right?


will you invest it in Silica for me?

 

[SethH]

With individual stocks, you only pay commissions and taxes and can pull out anytime you'd like. If you lose money you declare it on your taxes as a capital loss, if you gain you have to pay taxes on the gain.

 

[Jeff Ulmer]

Yes, you will have commissions getting in and out of a stock, and will be taxed on any profits, so all of those factor must be considered in the returns you are looking for. Mutual funds are either front or back end loaded, meaning the commissions come off either at the start or when you sell. Getting out of mutual funds is a bit trickier, since there is usually some form of penalty for getting out before a predetermined length of time, however most fund families will allow you to swap funds within the family for little or no cost (ie going from a tech fund to a money market fund).


Also, in order for there to be a buying and selling of stock, be aware that in either transaction there must be a seller/buyer willing to trade shares. When the stock is on the downturn, there are many more sellers than buyers, so the price you may see that urges you to sell could be substantially lower by the time you get your broker to actually close the deal.

I would also caution about taking stock advice from relatives. While they usually mean well, their tips aren't always very good. Also be aware that if you are dealing with a broker, they may be trying to offload shares from a bigger customer with their buy recommendations to you.

With the relatively small amount you have to invest, I would secure most of it in something a little less volatile.

 

[Tim Holyoke]

Keith,

If you haven't already, start here: http://www.fool.com/school/13steps/1....htm?ref=SchAg .

That will keep you occupied for a while. Next, go here and read about IRAs: http://www.fool.com/ira/ira.htm?source=LN

Once you do some reading about types of investments and such, you'll be ready to read about finding a broker: http://www.fool.com/dbc/dbc.htm

If you are web-savvy, and I'm assuming you are, you'll want to go with an online broker to keep costs lower. I have my IRA with Ameritrade, and it was easy to setup and is easy to login and keep track of things.

Above all else, READ. Make sure you know what you're doing before you invest.

One thing that seems to be a point of confusion with IRAs regarding withdrawal of funds - When you open an IRA (say with Ameritrade), you are simply opening an account that you will put money into. You initially just have the money sitting in the account, not invested in any stocks or mutual funds. Then whenever you want, you can buy stocks or mutual funds with the funds in the account. If you want to sell, you can at anytime, and the money will still be in the IRA even after you sell. You have to request a withdrawal to take money out of the IRA. Within your IRA, you can do all the buying and selling you want.

Also, with a Roth IRA, you can withdraw your principal at any time, penalty free.

I'm obviously not good at explaining things...I strongly suggest you subscribe to the Motley Fool message boards ( http://boards.fool.com/Index.aspx?ref=topnav ). They are more undertanding and helpful than you can imagine (just stay away from the Berkshire Hathaway board ), and will be able to better answer your questions than anyone here (no offense to anybody ).

Congratulations on figuring out investing is a better thing to do with you money than blowing it on your home theater!

Good luck,

Tim

 

[Brad_Harper]

Another piece of advice I'd like to share: Learn not to become emotionally attached to your money. This can often be very very hard for people.

In the future your going to make bad investments, everyone has at one time or another. The key is not to let those bad investments scare you away from potentially good ones.

Never invest money you can't live without and you'll be fine. If you need the money for college, rent, food, etc, then investing in a penny stock may not be the best choice. However if it is savings then let it ride. You'll suprise yourself with how easy it can be to turn a little money into a lot of money.

 

[Joe Szott]

Keith,

First off, let me comend you on thinking about this when you are 19. You are already way ahead of the game than 99% of folks. If I couldn't drink it, smoke it, kiss it, or drive it fast I wasn't into it at 19

The best bet for most folks is a ROTH IRA instead of a regular IRA. What's the difference?

A normal IRA is like a 401k plan. Basically, you put in tax-free money now (you either don't pay tax on this money, or get the tax returned from your year end federal taxes) and it grows over the long term. When you take it out at retirement (65+), you pay all the taxes then. It can be invested in stocks, bonds, savings accounts, whatever. The key to an IRA is that it is tax free, that's what makes it different than a normal saving account. Unfortunately, there are stiff tax penalties for early withdrawl for any reason (beyond maybe extreme sickness or hardship.)

Now a ROTH IRA is very similar with a few differences. The ROTH money is taxed now just like normal and then is never taxed again (like when you withdraw it at 55+ you never pay taxes on the money.) And you can withdraw your initial investment before retirement for any reason without tax penalties. So let's say you put $3000 in a ROTH now and in 10 years it is worth $8000. You want to buy a house and need some $ so you withdraw your inital $3000 and leave the $5000 (interest money) alone. No taxes or penalties. Once you touch that $5000 before retirement though you will get taxed.) In this way, a ROTH IRA is like a deep, long term, and tax free savings account.

I highly suggest getting a ROTH IRA for your situation. One benefit I didn't mention yet is that a ROTH IRA can be in addition to a regular IRA, 401k, or pension plan. Whereas you cannot have both an active IRA and 401k plan, you can have both an active IRA/401k and a ROTH at the same time. So if you get a job with a 401k later, you can still use your ROTH account for savings. That's what I do.

If you want to find an inexpensive one stop investment house, vanguard is excellent for no-load and low-load mutual funds and ROTH/IRA accounts. They are online at www.vanguard.com if you want to check them out. I have my ROTH IRA with them, investing in the Wilshire 5000 index under the VTSMX fund. Not the sexiest fund, but very solid.

Also, taking to a financial advisor is a real good idea. I've talked to the American Express ones, they are actually quite helpful and informative. Also they are free.

If you have more questions, feel free to PM me or ask them here. I'm no expert investor myself, but it doesn't need to be stressful or confusing to grow wealth. Mostly it just takes some commitment and patience.

 

[Keith_R]

Thanks for the info on IRA's, I'm beginning to like the concept of a Roth IRA more and more. What I'm figuring I can do is invest in the Roth right now and put maybe 1/2 or all of my 4,200 in it, I could save a little bit more and than begin doing some investments in the market.

I've been reading a lot on the Fool and this seems to be the best course of action seeing as Mutual Funds generally underpreform with expensive fees, and stocks (while being a good way to generate quick money) can be very volatile and can make or break your initial investment career. The Roth IRA's seem to me to be very stable and seem to be a good way for me to get started. I know I'm young and can probably get away with a high amount of risk in the market but I'd prefer to play it safe and not kill my entire savings/emergency fund over a bad investment, especially if I end up really needing the money for car troubles or other pressing stuff.

Just so I'm clear on this (and I truly want to understand this concept fully), an IRA is basically a retirement savings account with no initial ties to the stockmarket or other types of investments. However, if you wish you can begin using your IRA to invest in the stockmarket or bonds and the returns from those investments are put into your IRA. Roth IRA's are taxed now but never taxed again after you retire + you can withdraw the money for something like a house anytime with no tax penalties, and a normal IRA is tax-free until you retire and pull the money out. The money also can't be withdrawn for stuff like a house w/o tax penalties. Am I right in my understanding of the concepts here or am I completley wrong?

a few questions about the IRA (assuming I have the concept understood): How is the return in comparison to a standard savings? do IRA's offer higher interest rates to make your money grow or is the only way to make full use of your IRA and see good returns to invest in other sources with it? What advantage is there to an IRA over stasndard savings accounts?

Thanks!

 

[Jeff Ulmer]

From what was said above the difference is that the principle is taxed now in a ROTH IRA, and you can withdraw it at any time penalty free. Any gains will be taxed when the moeny is withdrawn.

The IRA doesn't tax the principle at the start, but you will be penalized for withdrawing money from it before retirement.

From the sounds of it, there is no rate of return for either, they are simply accounts that have certain tax deferment strategies. What you invest in inside those accounts can be as conservative or risky as you want.

 

[Joe Szott]

You have it nailed down pretty good. IRAs really are just special tax accounts, they act just like any other account. You get a statement, can invest in whatever you like (stocks, mutual funds, money markets, REITs, ?) The only difference from a normal account is that they have these special tax rules associated with them.

Yes, you can pull your principle money back out of a ROTH tax free at any time, but not all the money. Let's say you put in $6,000 to a ROTH over 3 years and it grows to $13,000 in 7 years. You buy a house and need money. You can pull your original $6,000 out at any time tax free. But the other $7,000 is interest money. If you touch that before the retirement age (59?) you get taxed. After retirement age you get everything in the account tax free forever.

 

[MarcVH]

Remember that you have two separate decisions to make here:

1. What do you want to invest your money in? Stocks, bonds, real estate, commodities, or what?
2. Should you do this investing through a "normal" taxable account, or some kind of special account like an IRA?[/list=1]
   
   These are two separate decisions. I'd focus initially on the first one, which is largely a function of time span. How long do you expect until you need this money? What might happen to make that date sooner?

 

[Drew Bethel]

CD's are not bad. There's zero risk and you can earn close to a tidy 3.5% these days.

 

[RichP]

There may be zero risk, but you do lose the interest if you need to withdraw before maturity. Some CDs even impose a penalty for early withdrawl.

A Roth IRA is a no-brainer for someone in your position, however the contribution is capped at $4000 a year. So most people have another IRA in addition to a Roth.

I commend you for looking into this at your age.

 

[Todd Harlan]

It's nice to see someone at your age thinking about savings....

I do want clarify that an IRA (Traditional or Roth) is an investment vehicle NOT an investment. When you setup an IRA account, you may purchase stock, bonds, mutual funds, or even options within the IRA.

So, I think the first step is to decide what type of account you want. If you decide to go with an IRA, at your age it's generally better to go with a Roth IRA. You can pay the taxes now and when it's time to take distributions it's generally tax free. For more info on the IRA (Roth or Traditional), I would take a look at IRS Publication 590. Keep in mind you have until April 15 or your tax filing deadline to make a contribution for 2004. So you can put in $3000 for 2004 and still have another $4000 to contribute for 2005 (for those over the age of 50 they can contribute an additional $500 - starting last year). Also, you are limited to that dollar amount regardless of how many IRA's you have open (you cannot open two IRA's and contribute $4000 into each - $4000 total for 2005).

As far as ivestments go, I think you should stick with mutual funds. You have time to ride the ups and downs. I wouldn't limit yourself to just index funds as others have mentioned. Find yourself a good mutual fund company (Vanguard, Fidelity, etc.) to compare their index funds and their domestic stock funds and you will see there are a lot of good stock funds that outperform. To be honest....I would buy several different funds - try to diversify your portfolio. Do some research and call some of these firms up and ask questions (most offer free guidance). As Peter Lynch said, "Know what you own and why you own it."