I am funding a Roth IRA, now what?

Question

I just opened a Roth IRA, and will max it out in a few months. What do I do next? Buy stocks, ETFs, mutual funds? I'd like to do some research before I start investing, but I wanted to open the account and start contributing. Any advice would be appreciated.

I also invest in a 401K - up to my company's match, and I also have an emergency fund in a money market earning 4.45%. My goal with the Roth is to get my feet wet and start out slow, but knowing that this is "long term" and risk level: low. Thanks!

My Roth money is also sitting in a 4.5% Money Market, as well.

Answer 1

Do you have an emergency fund (I'd recommend 6 months --> half a year's salary), if not you could start building one up with a high interest savings account. I use ING with 4.5% APR yeild. (plus a 25 dollar bonus for opening the account if you get a referral from someone who already has one - which that person would get 10 dollars for the trouble).
If you already have a high interest savings account with an emergency fund, open a trading account and buy index funds like the S&P 500 or the Vanguard 500 or the like. They are the lowest risk, cheapest (by way of fees) and easiest way to invest in the stock market. Once you get the time to do your own research you can get into individual stock picking.

I think i read this morning that E Trade now has a high interest savings account that your money sits in while not invested in stocks, so you could check that out too.. A great way to build that emergency fund + open the account and prepare for investing in stocks. Keep a 6 month cash fund + anything on top goes to ETFs to start and then individual stock picks.

There are a lot of ways to go really, it depends on what you want to do.

Answer 2

Do you have any other investments? Anything in a 401k? Or will this be your first investment?
Roth don't "yield around 8%", they are not investments and don't yield anything. They are just a means to put money in investments (like bonds, stocks, ETF, mutual funds, CD) without having to pay taxes on the earnings.
If this is to be your first investment, and for retirement I suggest investing in a Target Retirement mutual fund from T. Rowe Price or Vanguard. This can be your "core" holding. Then once you finish your research (invest in what you know, you wouldn't buy a pair of shoes without knowing if they were mens, womens, style to suit you, and proper size, would you? Well do the same with stocks, ETfs, most mutual funds. An exception is a Target Retirement mutual fund as it covers the world of investing and is a good core holding for most people) then you can pick non-diversified stocks, etfs, funds, etc.

Answer 3

What you buy will depend on how active you want to be with your investments and how much risk you want to take. All of the strategies you mentioned could have high or low risk depending on what the underlying investments are.

First, determine how much risk you are comfortable with over the long term. You could buy one fund and be diversified, or buy 100 and not be diversified. Know what you own. A typical asset allocation has some equity (stocks), fixed income (bonds), and cash (money market funds). Stocks generally have more risk than bonds so determine how much risk you are comfortable with. Once you know how much of each type of asset you wish to have, then you can decide what type of equity to buy (ETF, individiual stock, mutual fund, etc.) Focus on the big picture first.

If you are making regular contributions to your account, you can use a dollar cost averaging strategy to buy into the funds each month. This will help you avoid buying at the wrong times. Just put away money each month no matter what the market looks like. When you are ready to retire, you will have a boatload of cash.

I would keep my money in a money market until I decided what I wanted to buy.

Answer 4

Your feet ARE wet..... look at your 401... what is that invested in? is it doing okay? what funds are doing best? is it diverse?
Are you " lacking" something? ( There's your first hint at what to put in the ROTH)
I'm just trying to say: you're probably on the right track as it is..
but certainly it never hurts to educate yourself some more and do a little of your own " investing"...one thought, you mentioned ETF's ...if you look into them, they could be a way for you to start your own investing, because like stocks, there is no minimum purchase requirement...you can diddle in a couple before your Roth has 3 or 4 thou in it....
http://finance.yahoo.com/etf
Also research other funds there ( off to the left)
Good luck.
P.S. Any " foreign" market exposure in the 401 ? If not an ETF for Australia could be a shot...( loaded with the materials, minerals and metals that China needs...right there at their doorstep)

Answer 5

70% in safe diversified equities. I recommend having 60 percent of that in small and mid cap companies and the other 40 percent in large companies. Purchase this through low cost mutual funds. Vanguard has an index mutual fund that tracks the S&P 500. That's one alternative. (also diversify a portion of this into international stock. Europe and Japan look like they meet your risk requirement)

20% in bonds. Have a nice mix of Treasuries, corporates, and agencies that can be purchased through low cost mutual funds.

5% in Real Estate Investment Trusts. They can be purchased in low cost musutal funds.

5% - Since you seem to be very concerned about risk buy governemnt I-Bonds..they are inflation protected and government guarenteed.

Answer 6

Penny stocks are loosely categorized companies with share prices of below $5 and with market caps of under $200 million. They are sometimes referred to as "the slot machines of the equity market" because of the money involved. There may be a good place for penny stocks in the portfolio of an experienced, advanced investor, however, if you follow this guide you will learn the most efficient strategies https://tr.im/fb19f

Answer 7

While you decide what to invest in, make sure the money is earning the most interest possible.

You can purchase any of the investments you mentioned: stocks, ETF's, mutual funds, CD's.

Answer 8

Yes. Do your research. Some of the 3 categories that you mentioned should do you just fine. My only advice on buying stocks is to stick with solid companies, none of the speculative variety. Save the speculations for your taxable accounts so you can write off the losses.

Answer 9

Roth yields about 8% many stocks do about 10 on average. Do your homework and find some bluechip, high yield stocks. Google is at around $400 a share.

Answer 10

Talk to your broker to select an already made diversified portfolio with the date that you want to retire.