FIRST TIME ROTH IRA

[Guest nextelripper]

hello. i just opened a ROTH IRA account with ameritrade. my situation is that im 18 and i put in $2000 before april 15. what do i do with the ira now? its just sitting there. any feedback would be great. thanks

[John G]

Congratulations on starting a Roth at an early age. You will learn a lot in the next few years about investing and you have taken the first step in building wealth.

I would not recommend buying either stocks or bonds - because with $2k you can not be diversified. Diversified means a range of holdings. When you only hold one or two stocks, you can suffer greatly from a plunge in one of them. Individual stock/bond ownership makes more sense when you total assets grow beyond $30,000.

You should review the types of mutual funds that Ameritrade supports. Ameritrade does not show visitors to their site a list of available funds, so you will need to do some digging. Their website suggests thousands of funds are available, you are looking for just one right now. (Next year you may use the same one or find a second fund.) A fund solves the problem of diversification and you can deploy the full $2,000.

I would focus on NOLOAD funds, the funds that do not charge a initial or on-exit commission. I would look for a fund that broadly covers the stock market and that has a annual expense ratio of less than 0.5%. A stock index fund may work well. I noted that Ameritrade does mention Vanguard funds - that group is known for index funds.

What to look for in a fund at your stage: NOLOAD, low annual expenses, broad coverage of the stock market, suitable for a $2,000 initial purchase.

After you buy the fund, get on with your life. Nothing is likely to happen fast. But you are hoping that in less than 7 years, your assets will double. When you are 60 years old, this initial contribution of $2000 should have grown to about $128,000.

If you take a disciplined approach to investing an put $2000 in each year, and average about 10% a year in appreciation, you will be a millionaire in your 60s.

Good luck. Post again if you have additional questions.

Final note, don't worry a lot about "performance" right now. What you learn in the first few years is more important than the results. I hope you are also investing in education as well. One final suggestion - buy a subscription to Kiplinger Financial magazine for about $16 - it is an excellant source of info on funds, stocks, careers, loans, buying a home, buying a car, etc with a good match to the 18-30 year old audiance.