Questions on the basics.

[Guest jennifer keane]

I am 22yrs old i just sent $2,000. into Putnam Investments to start a roth IRA I want to know if it is mandatory that i make a contribution to the ira each year or is it optional. My second question is, is there any risk of losing the original $2,000. i invested. thank you

[Michael Devault]

You are not required to contribute to a Roth IRA each year. However, it's a good idea to do so when possible. The more money you save while you're young, the more you'll have at retirement.

If you invested in a mutual fund, the value of the fund will vary with market conditions. As such, it is possible that you will lose some of your principal. However, considering your age, that may not be a great concern. You have plenty of time to recover most losses.

Hope this helps.

[david rigby]

You might find this discussion useful.

http://benefitslink.com/boards/index.php?showtopic=6713

[John G]

Congratulations on getting started at a young age. Time is the number one friend of all investors. A Roth is a great tax shelter.

The amount you put in each year is up to you. The max is $2,000 but you could add $300 or $1000 or nothing in any given year.... assuming there are no issues with the earned income qualifications.

All investments include some level of risk. CDs are "insured" against bank failure, but over the long haul may not sufficiently exceed the rate of inflation to meet your goals. Bond values go up and down (in the opposite direction of interest rates) and are only as reliable as the underlying authority (the nuclear power plant WOPPS bonds in the northwest defaulted!). Bonds are basically IOUs. Equities (stocks) or equity based mutual funds rise and fall with the stock market... but good years outnumber bad years by anywhere from 5:1 to 8:1 and the good years are ussually much better than the bad years. If you believe that the future is going to be better and that economic growth is inevitable, then you want to be in stocks which is buying into the nations/worlds future.

You said you chose a mutual fund. That helps you mitigate against the risk of owning just one or two stocks. The term is diversification. Don't worry about the flucuations in value. Over the many decades that you will be investing, you should do just fine. Since 1920 or so, there is not one 20 year span of time when investors in stocks lost money. So, even if you have back to back bad years (I think this has happened 3 times in 80 years) stay with the system. This is why I said time is an investors friend. Investment success is not measured in days, weeks or months but rather in decades.

You need to become more educated about your choices and how investing works. Subscribe to Kiplinger Finance or Money magazines and spend 1 hour a month reading articles. Skip the myths and jackpot stories and focus on the long term stategies.

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