Roth IRA Beginner: Help!

[Guest CCCarter]

What are the best companies to use? What rates of interest should I expect? Where can I get a DETAILED prospectus? I would appreciate anyone taking the time to respond. Thanks.

[Kathy]

Welcome to the world of IRAs! You have a million choices and there is a ton of information about all of them right here on the web! You can open an IRA with just about any bank, mutual fund, brokerage, etc... Part of your decisions depend upon your age, desired retirement age, risk tolerance and your other investments. Since you are new to the arena, you might want to solicit the help of a financial planner in your area who can help you look at your own situation and then get information for you on the types of investments best suited for you. You can also check out the Fund Spot for a whole list of mutual funds with links to their info available on line:

http://www.fundspot.com/main.shtml

The key is to invest early and invest as aggressively as you can tolerate for the long term!

Good Luck!

[John Olsen]

Carter,

The "best" place to invest your Roth IRA money depends upon your particular tolerance for risk, time horizon (when will you want to withdraw the money), and goals (how much return do you require, realizing that Return and Risk are partners - to get more of one, you're going to get more of the other).

If you demand SAFETY OF PRINCIPAL (you can't lose any of the money you invested), you'll have to settle for rather modest (not to say "paltry") returns. If you can handle the prospect of PRINCIPAL RISK (that you not only aren't guaranteed a rate of return ON your investment, but you might lose some - or, theoretically, all - of the money you invested [your principal]), AND if you will be investing and withdrawing this money over a long TIME, then EQUITIES - stocks, or stock mutual funds - is PROBABLY the general category for MOST (if not all) of your IRA money.

As to where, in that general category, you should be investing, that's a question which can only be answered by you (perhaps, with the assistance of a financial advisor who understands YOUR goals and YOUR situation).

You might start by checking out (perhaps literally; libraries are a GREAT resource) general books on investing. Andrew Tobias is pretty good. Jane Bryant Quinn is pretty sharp about some things, but is both biased and remarkably ignorant, when it comes to insurance and certain types of investments [e.g.: annuities]). And there are lots of others.

READ a lot! Discuss this subject with folks whose judgment you value. Above all, remember two rules:

1. Bulls Get Rich. Bears Get Rich. Pigs Get Slaughtered. If it looks too good to be true, IT IS!

2. If it makes you lose sleep, DON'T DO IT!

Best wishes,

------------------

John L. Olsen, CLU, ChFC

Olsen Financial Group

St. Louis, MO

[Guest Hillary P]

There's really no way to tell you the "best" places to set up any type of IRA, including a Roth. It depends on your individual circumstances, the level of risk you're comfortable with, etc. Similarly, the return you might expect would vary depending on the particular investment vehicle you choose (i.e., an IRA invested in a stock fund, of which there are many, generally provides a higher return than, say, a money market IRA, over the long term, but is subject to the fluctuations of the stock market). Especially if you're interested in a stock fund, I would suggest contacting one of the large mutual funds, such as Vanguard(www.vanguard.com), Putnam (wwww.putnaminv.com), or Fidelity (www.fidelity.com) -- others on the board can probably suggest more names. You would probably want a no-load fund. You can usually request a prospectus for any fund that looks interesting through either the web site itself or a toll-free number. Good luck.

[John G]

All of the prior advice is very good. You need to educate yourself about investing. Besides web sources, I would highly recommend Kiplinger or Money magazines that provide good general coverage. The previous message listed some good mutual fund families, who typically have material for the first time investor. I might suggest adding Charles Schwab because of their educational material and connections to a wide range of mutual funds.

You talked about "interest rates". I would suggest that you need to take a good look at stocks or mutual funds that seek capital appreciation, especially if you have a long term retirement planning horizon. To say it simply: absolute safety such as bank CDs offer very low returns (4-6% annually). Over a very long period of time, equity investments (stocks) have traditionally had higher returns. For example, an investment with an annual return of 5% doubles in about 14 years. The same investment at 10% (more typical of the long term return of stocks) doubles in about 7 years. If you start your retirement investing in your 20s, add the max each year and invest in stocks it is very possible to accumulate a million dollar retirement account. (my bias is towards stocks or stock mutual funds)

Your education in investing will occur over many years. I would not want you to wait to get started. Pick something simple -- a bank CD, an stock index fund, a blue chip fund, etc. and get started. Next year you will have some experience with your choice and hopefully will have learned more about investing. In year two, you can add more to the first choice or make another selection.

A few last words: time is your friend in investing, think long term, ignor the day to day headlines and you will do fine. Good luck.

[This message has been edited by John G (edited 05-25-99).]