Investing help

[livecoug]

I am cluless with this.. what is the best thing for me to do to start investing? my main goal is to have some investment account to save up for a down payment on a house or something like that. I am a member of USAA and have been looking at thier Investart program. They have many different strategies from conservative to risky. I would probably be moderate. When I go to open an account, it asks if I want a Roth or Traditional... What do you guys suggest?

thanks!

[Mormon Red Death]

Originally Posted by livecoug

I would probably be moderate. When I go to open an account, it asks if I want a Roth or Traditional... What do you guys suggest?

thanks!

That depends. do you want to pay taxes now or when you retire? Traditional IRA are pretaxed and Roth IRA are after tax. Some think its better to go traditional in that when you retire you will be in a lower income tax bracket so you get out of paying taxes now. Others think Roth IRA are better because you never know how much your tax burden will be when you retire.

It sounds like you are looking to save for a house. There are ways with IRA where you can borrow on the IRA for down payment and such. or you can just start putting money into some mutual fund or cd account that gives you a modest return on your investment. I would suggest reading MSN Money as they have a lot of article that can help you

[SteelBlue]

Originally Posted by livecoug

what is the best thing for me to do to start investing? my main goal is to have some investment account to save up for a down payment on a house or something like that.

Let me start off by admitting that I'm a very conservative investor. So, if you're not then you can disregard anything past this point. Here's how I would break down investing for the beginner. I'm sure plenty will disagree.

1) Emergency savings. Until you have this, I wouldn't bother with anything else (excepting #2) as the first emergency that comes up will wipe out your other savings anyway. People suggest different amounts of money for emergency savings. Enough to cover 6 months of bills seems to be the most standard answer.

2) 401K/403b. Take advantage of your workplace savings program ASAP. My personal belief is that until you have maxed out this option (currently I believe one is allowed to invest $15,000/yr pre-tax) there is no reason to move on to another option. I've seen a lot of guys try etrade accounts etc... before maxing out their retirement accounts. They are investing taxed dollars before they've exhausted their pre-tax potential. You will hear some argue that instead of maxing out the retirement option you should put in the exact amount that will earn you the employer match and then go to the traditional or Roth IRA. I can see their point, but in my case it makes more sense to max the 401k/403b.

3) IRA. I advocate this only after maxing your retirement account.

4) Personal investment accounts such as etrade etc.... Only after you've met the first 3 options does it make much sense to me to begin investing outside of them. Now you're spending dollars that have already been taxed. If you put this step before the others then you lose the opportunity to invest pre-tax dollars. The advantage of pre-tax investing being that you can grow that money for a long time before taxes come due. Some will argue that you get raped in the end on the taxes. This will depend on what tax bracket you are in when you retire.

Now, if your main goal right now is to save for a house and you weren't even talking about retirement savings yet then things change a bit. I'd build the emergency savings first, then begin a simple money market account for my home savings. The rate of return sucks right now, but I'm assuming that you want your house within the next 5 years or so. Investing in stocks in a shorter term than approx. 7 years is risky and it seems silly to me to take on a lot of risk in saving for a home.

[bluegoose]

Does anyone know for sure what the annual maximums for IRA contributions are? It seems like I recall it being different for each type of IRA. Something like $8,000 for traditional, less for Simple and SEP.

Do people actually max out a 401/403B, and an IRA in any given year, plus have extra to invest through an individual investment account? Man, I am in the wrong business.

[SteelBlue]

Originally Posted by bluegoose

Do people actually max out a 401/403B, and an IRA in any given year, plus have extra to invest through an individual investment account? Man, I am in the wrong business.

I work with a couple of PT's who do. I believe the max contribution for a traditional and Roth IRA last year was $4,000.

My point wasn't necessarily that someone should be doing all those things. More that it doesn't make sense to start with something like an etrade account when there are other options that should come first.

[livecoug]

that's good stuff steel, thanks!

[fusnik11]

Originally Posted by livecoug

that's good stuff steel, thanks!

Live here is a little of what the lady said concerning a roth....

So, it depends largely upon how long his time horizon is. Whether its long or short, truly it is a smart idea to have a Roth IRA. The Roth allows for the withdrawal of his principal anytime. It is the interest that can’t be touched without penalties or taxes. There are other advantages of the Roth, for example, five years down the road the interest (earnings) becomes tax-free. All of it can be withdrawn (including earnings) if the account has been opened for both 5 years and meets a qualified distribution.



A qualified distribution is:



1.) Distribution after age 59 ½

2.) Death distributions to beneficiaries

3.) Disability distributions

4.) 1st time homebuyer dist.

Don't know if that helps...

Any other questions I will be more than happy to shoot off her....

[danimal]

Originally Posted by SteelBlue

Let me start off by admitting that I'm a very conservative investor. So, if you're not then you can disregard anything past this point. Here's how I would break down investing for the beginner. I'm sure plenty will disagree.

1) Emergency savings. Until you have this, I wouldn't bother with anything else (excepting #2) as the first emergency that comes up will wipe out your other savings anyway. People suggest different amounts of money for emergency savings. Enough to cover 6 months of bills seems to be the most standard answer.

2) 401K/403b. Take advantage of your workplace savings program ASAP. My personal belief is that until you have maxed out this option (currently I believe one is allowed to invest $15,000/yr pre-tax) there is no reason to move on to another option. I've seen a lot of guys try etrade accounts etc... before maxing out their retirement accounts. They are investing taxed dollars before they've exhausted their pre-tax potential. You will hear some argue that instead of maxing out the retirement option you should put in the exact amount that will earn you the employer match and then go to the traditional or Roth IRA. I can see their point, but in my case it makes more sense to max the 401k/403b.

3) IRA. I advocate this only after maxing your retirement account.

4) Personal investment accounts such as etrade etc.... Only after you've met the first 3 options does it make much sense to me to begin investing outside of them. Now you're spending dollars that have already been taxed. If you put this step before the others then you lose the opportunity to invest pre-tax dollars. The advantage of pre-tax investing being that you can grow that money for a long time before taxes come due. Some will argue that you get raped in the end on the taxes. This will depend on what tax bracket you are in when you retire.

Now, if your main goal right now is to save for a house and you weren't even talking about retirement savings yet then things change a bit. I'd build the emergency savings first, then begin a simple money market account for my home savings. The rate of return sucks right now, but I'm assuming that you want your house within the next 5 years or so. Investing in stocks in a shorter term than approx. 7 years is risky and it seems silly to me to take on a lot of risk in saving for a home.

You sound like a Dave Ramsey fan to me -- you listen to him?

[SteelBlue]

Originally Posted by danimal

You sound like a Dave Ramsey fan to me -- you listen to him?

I've never heard of him. I don't listen to any talk radio beyond Dan Patrick. Where can I catch the show?