I need advice on where to put my money. Not sure what is best for my situation

[Guest yote25]

Hello im brand new to investing my money in any type of securities. I have about $10,000 that I want to put in a Roth IRA or whatever would be best. Im 30 yrs old. I basically want to put it in something high growth. I want to leave it in there for retirement and add to it whenever I can from now until then. I really have no clue where to start. Im thinking about going in and talking with a financial advisor but just wanted to get some feedback here. I dont know if stocks are the best, IRA's, mutual funds. Its really scary because I dont want to do the wrong thing. What kind of interest rates can i look for? What would be the best thing for me to put that 10,000 in to grow the most for me? Also if i just left the 10,000 in for say 30 years what could it turn into? Thanks for any help on what I should do and who you would advise me to go talk to.

[Guest heike]

1. Go to your local library and read some "Money" magazines. (Or other easy reading investment magazines)

2. Go to Vanguard.com and read some of their articles.

3. Keep the cash in a money market account until you know a little more about investing, so when you do talk to an adviser, you know what he is talking about.

4. Never invest in anything you don't understand!!!!

The best to start would be a "Roth IRA invested in a No-Load Mutual Fund"

[John G]

Heike offers some good advice.

In todays world, YOU are in charge of your retirement. I would read some of the back March issues of Consumer Reports (they did not cover retirement and mutual funds this year for some reason) or Kiplinger Finance or Money. You can also find a Wall Street Journal ~ guide to retirement or investing ~ and other basic "how to" books at your local book store.

Be wary of investment advisors. You need to be well informed to understand the sales pitch you will get. Some advisors are both ethical and knowledgeable. Many are well.... not.

You use the term "interest". Long term investments that are just collecting interest are not likely to grow significantly faster than the rate of inflation. You can't really wisely invest 10k in stocks and own a diverse portfolio, so you should be looking at mutual funds. The universe of mutual funds includes those with commissions (loaded) and no commission funds (no load). There are over 8,000 choices... you need one or two. Within the universe of no load funds, you should look at those with below average expenses (all funds have some level of expenses, expressed in a percent of assets each year). You can go to mutual funds directly, or buy them via a brokerage account like Etrade, Schwab or Scottrade. Most of the brokerages and mutual funds have good information for beginners on their websites.

The "Rule of 72" says that you divide the annual gain of an investment into 72 to determine the number of years til your investment doubles. If you put your funds into a stock portfolio with a slight bias towards growth you might be able to average 10% a year. That means your assets would approximately double every 7 years. So, here is what would happen to just 10k invested at age 30

Age 37 $20k

Age 44 $40k

Age 51 $80k

Age 58 $160k

Age 65 $320k

Age 72 $720k

Note these are "nominal" dollars - not "constant" dollars, so the buying power would be reduced due to inflation. This is only back of the envelope math - assuming 10% every year and stock markets go up and down.

If you contribute $4,000 to a Roth for the next 35 years and earn 10% on average on your investments, you would have just over 1,080,000 at age 65! That's not a million in todays purchasing power, but still a very significant nest egg.

The maximum amount you can put into a Roth this year (age 30) is 4,000. You just missed the deadline for contributing for 2005. Do some reading, visit some websites. Do get started this year, but don't act until you have a better understanding of your choices. You need to get up to speed on learning about your choices.... then about 2 hours a month devoted to reading about careers/finance/investing may work.

Also - do keep some of your cash as a rainy day reserve. While you can take contributions out of a Roth at any time, and short term cash needs can often be solved with a line of credit or short term credit card, you should have some cash reserves in case you lose your job or need to replace your car.

You did not post your annual income, but if it is like the average 30 year old then I need to say that 10K in cash is not a lot of money. Think about what you can start stashing away each year. I would suggest that the 4K in a Roth each year may be your minimal goal.

Post again if as you do some research you have additional questions.

[Guest redlenses]

OK Quick and Simple Advice (in case you don't want to spend a lot of time learning about finance before starting - its better to start now than putting it off until someday when you have time...):

If you have a 401(k) at work and they provide matching and you are not currently not contributing / maxing it out - start contributing enough to get the full match.

If you make less than the cutoffs (110,000 single) (160,000 married) for a Roth IRA - open a Roth IRA and contribute the maximum ($4000 this year).

Max out the rest of your 401(k) ($15,000 this year)

If you still have money left over, make sure you have an emergency fund of 6 months of expenses in Savings or Money Market. I'd recommend one of the following: Virtual Bank eMoney Market (4.5%), Emigrant Direct (4.5%), HSBC (4.5%), Capital One Money Market (4.25%) or ING Direct (4.15%). Barnkrate.com is a good place to look for the best yields.

Now within your 401(k) or Roth IRA only buy mutual funds until you have a significant amount of money and financial education / experience. Which mutal funds?

For your IRA if you want minimal involvement, buy a targeted retirement fund like Fidelity's Freedom Funds. You simply pick a fund that has your projected retirement date and the fund adjusts risk as you get older - this is the ultimate in hands off, you just put money in and don't worry about it.

The 401(k) will have a set number of choices from your company, the key here is to have a balanced portfolio. Each of the funds will have a "style". Your job is to own funds of different styles so that you have some winners and some losers each year instead of having all yours eggs in one basket. Generally you want a mix of Large Cap, Mid Cap, Small Cap, International, and Bonds. The first 4 are equities (stock based funds), the younger you are, the more you want in the equities and the less you want in bonds.

For the small, mid, and large cap you want either a "blended" fund of each, or you want to own seperately a "Value" fund and a "Growth" fund for each (blended means value and growth).

So minimally you need to choose 5 funds in your 401(k). Rules of thumb, no more than 25% in international, no more than your age % in Bonds, split the rest evenly amoung the small, mid, and large cap funds. So if you are 30 - maybe 15% bonds, 25% international, 20% leach in arge cap blend, mid cap blend, small cap blend (alternatively 10% each in large cap growth, large cap value, mid cap growth, mid cap value, small cap growth, small cap value).

As time goes on and some are winners and others are losers, your protfolio will get out of balance, you'll want to rebalance quartery or yearly so that you sell some of the winners and buy some of the losers so that your percentages go back to what you originally had them at.

In a nutshell, this should get you started without doing any heavy research. I do recommend learning as much as possible, but don't use that as an excuse to put off starting to save for retirement.

[Guest Wedge1]

redlenses, thank you.

You pretty much answered my post entitled "need guidance". It's a bit wordy so I don't blame you for ignoring it, but your quick guide has given me the bare-bones of how a newbie should attempt to spread his money out safely. Like the original poster of this thread, i'm new and learning and don't want to do anything that will be regrettable later on, all in a hasty attempt to do what's best with my money now. As you pointed out, we can and should take time to seriously learn, but it's foolish to sit on money without letting it grow in the meantime.

[John G]

Good post redlense. We might differ a little on percents, but we agree on the concept. One small exception - someone just getting started with say $4000 or less can pick a general fund or one of your suggested 5 categories and then in following year add a second one. The five fund approach, in my opinion, is more applicable to someone who has reached the 20k level of retirement assets.

[Guest jkriv03]

Emigrant Direct now offers 4.65% APY(as of 05/26/06) on their online savings accounts. That is the highest I have found. Just thought I'd throw that out there.

[John G]

Emigrant?

OK, lets talk investment objectives. If you have already stockpiled a few million, if you are well past 65 and drawing down funds, if you know your health is deteriorating and you don't expect to live very long, or if you just don't understand investing.... than a savings account or CD might be reasonable for part of your assets.

BUT.... if you are in your 20s, 30s, 40s, 50s, or older and have a long expected lifetime (90+ is a lot more common than most folks realize) than a substantial part of your assets should be in equity markets. The reason is that inflation is eroding away the value of your assets. If inflation is running about 3% (more if you are heavily dependent on gasoline and medical care), than Emigrant gives you very little real growth.

Younger folks (I'm 55 and think I am young) should, in my opinion, have between 80% to 100% of their assets in equities. This is the asset building stage, where you have plenty of time to ride out the bumps in the DOW/NAZ. If you are between 20-50 and have amassed you multiple millions, than you might be a little more conservative.... don't laugh, there are lots of recent millionaires under 50! For beginners, the safest way to do that is via NO LOAD and low annual expense mutual funds.

Caveats. Don't invest in anything you don't understand. Don't try to "time" the market. If you don't understand investing... time to start dedicating some time to what will fund "the rest of your life". Two hours a month reading about investing will over many years build a very good base. Most of us spend that much watching our favorite sports team.