IRA investment advice

[BigAir]

I want to open an IRA today, so it will count for last year. I know very little about IRAs and almost nothing about investing. From reading some on the web I am leaning towards putting my money in a Vanguard Target Retirement Fund. Is this a good plan? Is there something else I should consider? Thanks for any advice.

 

[polaris dude]

Depends. Do you want to invest own your own or would you rather have someone else do it for you? For me personally, I would just take care of it myself because I feel like I have a fair understanding of the market and how to buy/sell, but if you just want to buy something and forget it then go with Vangaurd. If you want to go that route they are one of the best because they buy index funds which prevents a trader with control of your account from adding riskier positions in certain stocks to your account in order to outperform other funds which, as you know, can end bad.

The only negative to this type of account is you have no control as to the level of risk in the account. They are all lumped together in the same plan(which starts out riskier and the closer to retirement the account gets becomes safer with less returns than possible).

 

[BigAir]

Can a guy switch from one kind of a fund to another without penalty? If I decide in the future I want to pick my own can I do that?

 

[SnoKing]

Can a guy switch from one kind of a fund to another without penalty? If I decide in the future I want to pick my own can I do that?

I think you should have researched this sooner than 4/15

 

[BigAir]

Yep, I agree, but it is too late to do anything about it now. Can I even get it done today if I try or does it take time for the money to transfer and everything to go through?

 

[polaris dude]

I am not 100% certain, but I think it works like the account I had given to me by my grandparents at birth. I had a college fund of like 500$ or something with american century investments which was distributed in various things ranging from bonds to stock. So basically I had like 18 units(for lack of a better definition of what it was, you can call it stock for all I care) in this fund that was worth like 1300$ or something like that.

Now, I am assuming that it would work similar to that as well. You give them say 1,000$ and they give you 10 "stock" in this fund which is spread over different investment vehicles. So basically once you sell it you have your money back and can buy/sell as you please. I'm not sure how you pay them(most accounts have an expense ratio) so I am not sure if there is any sort of penalty associated with the account that would be something to ask whomever you get this from. But the awesome thing about Vangaurd is they do not charge you a double fee when you use their services(some companies do in an indirect manor when they buy from other funds that also have an expense ratio).

^that is my assumption of how it works, but you should ask the person you buy it from how it works in terms of getting out and such.

 

[polaris dude]

https://personal.vanguard.com/us/funds/vanguard/TargetRetirementList#targetAnchor

^I am assuming your looking at this and the chart which explains how it changes with the age/proximity to retirement age?

And I just googled quick and found that Vangaurd has one of the lowest expense ratios out there which is a great thing.

 

[BigAir]

Yes, that is exactly the thing I was talking about. I went ahead and did it because it had to be done by 2:00 pm MST to count for 2012. Hopefully I made the right choice. I called them and the lady said I could change it to any of their other funds in the future if I want to for no charge.

 

[agalen]

A target retirement year fund is a great option if you are not comfortable selecting your own mutual funds to purchase. I would pick the target fund or talk to a certified financial planner (through an Edward Jones or Merryl Lynch type of establishment) about selecting a few individual mutual funds to purchase for an IRA. Also, you will not really want to touch the money or sell of assets in the account until you reach retirement age as stiff penalties and taxes apply. Also FYI look at a Roth IRA, it is a great deal if you qualify!

Hope this helps and happy investing!

 

[polaris dude]

Sounds like it will count for this year.

and yeah @agalen that is true, but can't you take it out under certain circumstances such as down payment for a house, big medical bills, or loss of income(unemployed)?

 

[XXL]

Good on you for the decision to save, no matter what the reason. Take it from your average working stiff that started in the late 70's investing in mutual fund and bonds, it is possible to amass a tidy sum.

 

[Blu Du]

I just left it to my banker and they recommended franklin Templeton. I too mailed off mine on fri. Been doing it for some yrs now and hope it pays off.

 

[polaris dude]

It's a funny thing. The first 10 years it looks like your not getting jack. But then 20-30 years down the line when you've been compounding your money at 5-7% it is always fun to watch your money double, then triple, and then quadruple.

 

[milehighassassin]

Talk to a tax professional!

 

[TIM]

I would talk to some pros in this catagory, wether a finance guy or an accountant.

what polaris dude is refering to is the rule of 72. basically this rule lets you know how long it will take for you money to double. the math is simple

10 years at 7.2% interest your money will double. to double your money in 5 years you needs 14.4% interest. etc, etc
years x interest rate= 72

 

[polaris dude]

I would talk to some pros in this catagory, wether a finance guy or an accountant.

what polaris dude is refering to is the rule of 72. basically this rule lets you know how long it will take for you money to double. the math is simple

10 years at 7.2% interest your money will double. to double your money in 5 years you needs 14.4% interest. etc, etc
years x interest rate= 72

Yep, either that or catch the market at the lowest point and sell it between the middle and the top. Then it only takes about 2 years to quadruple

 

[agalen]

Sounds like it will count for this year.

and yeah @agalen that is true, but can't you take it out under certain circumstances such as down payment for a house, big medical bills, or loss of income(unemployed)?

I believe if it is set up as a Roth IRA it can be taken out for the circumstances you are referring too without penalty.

Also, I have found that if you are participating in an account on a bi-weekly or monthly basis it can even out some of the highs and lows in the market. versus doing lump sum purchases each year.

 

[go high fast]

Try wells fargo advantage funds. Great information and many investment options. Website is super.