Newb Investor: I opened a Roth IRA....now what?

[LadyM]

So I just opened a Roth IRA account with ING's Sharebuilder and transferred a few dollars from savings....now what???  Apparently I have to "invest" that money....what does that mean exactly?  I sort of thought opening the Roth IRA account would take care of that for me. 

I'm obviously in over my head. Please help.

[arebelspy]

The Roth is just the retirement vehicle.

Right now you have it sitting in cash inside the Roth.

Now you figure out what you want to invest that in, be that individual stocks, bonds, gold, REITs, index funds, mutual funds, etc.

Since this is mostly new to you, ask away, and we'll try to answer as best we can.  :)

[sol]

Putting money into a Roth IRA just means that whatever earnings that money eventually makes will be sheltered from taxes.  If you leave it in cash, it will probably have no earnings, so it won't matter.

But within the Roth IRA tax shelter, you can invest your money in just about anything.  Most people opt for stocks and or bonds, but you can also buy CDs or crazy stuff like REITs.

My advice would be to move your money into a no-load total stock market index fund.

I had many of the same questions when I first opened a Roth account.  In fact, after I opened it (with my local credit union) I then spent the next day on the internet learning about Roth IRAs and ended up going back to my bank to cancel the whole thing, because I decided opening my IRA with Vanguard directly was a better option.

[LadyM]

Ok, that helps me understand where I am, and that's excellent.  Thanks so much for straightening that out.

Now I need advice as to where to invest it.  I'm 33 and married, with 2 small kids.  Both of us work, but neither of us is part of an employer-sponsored retirement plan at the moment, as we're putting most of our money towards paying down debt and the rest towards savings.  After reading several MMM rants about large emergency funds being dumb (because you were essentially losing money by keeping it in savings and not in something with more growth potential), so I thought opening a ROTH (post-tax and still readily available contributions in case of an emergency) would be a good idea.

I'm not financially risky by nature; not a gambler or a purchaser of lottery tickets.  I don't want to lose anything I contribute, and I'd be happy with slow steady growth.  I know MMM says great things about index funds and the impression I get is that they walk the "middle path" between being conservative and risky, so I'm leaning that way.  But I honestly know nothing about anything else.  This is COMPLETELY new territory for me.

I opened the account with a meager $200 and I hope to contribute at least $100 to it each month for now.  It's not a lot, but it's a start.

What would any of you recommend in terms of investing this cash?

[fiveoh]

Sharebuilder charges 9.95 for trades and $4 on tuesdays.  I'd wait until you had at least 1k and invest it on a tuesday to keep your expenses low.  I'd just buy 1k worth of SPY once you get that 1k built up.   It tracks the S&P 500.  You really should read a few books and do some more research for the next few months while you build up your account balance, instead of just buying something because someone on an internet forum(including me) tells you to.   

[arebelspy]

Buy index funds.  Don't ever look at the balance.  Ignore what the stock market is doing.  Invest for the long term.

[Kriegsspiel]

So I just opened a Roth IRA account with ING's Sharebuilder and transferred a few dollars from savings....now what???  Apparently I have to "invest" that money....what does that mean exactly?  I sort of thought opening the Roth IRA account would take care of that for me. 

I'm obviously in over my head. Please help.

I thought this was funny, because I did the EXACT same thing when I started out.

[jpo]

I let the first $10k sit for 9 months in cash in my Roth when I first opened it (Jan-Oct 2009). Missed a nice 20% run up.

[MacGyverIt]

Would it make more sense for her to run the Roth through Vanguard? I've been under the impression that Vanguard's costs are a bit less expensive overall. My Roth is through my financial advisor, so I'm not much help here...

[bcg150]

Lady,

First and foremost, congratulations on starting your retirement.   I will echo a few things said by others because they are very important.  Read!  Research what to do next with your Roth IRA.  One of the books I read(I tend to be an index investor) was 'The Bogleheads' Guide to Investing'.  This book got me started down the path of what I wanted to as far as investing goes.  I will give you a few key points to the book but it is an excellent read.   The book mainly focuses on two things.  Keep your expenses low and only invest for the long term.

The book really focuses on keep expenses and fees low so make sure you research any fund you are looking at.  From my perspective the Sharebuilder may not be the best route given the trading fees. 

As far as Vanguard goes I have a Traditional IRA through them and I am very pleased with it.  I invest in index funds and the expense ratio is very low.  The only problem with Vanguard is you need a Minimum 3k investment and they do have fees, albeit small ones, until you get your investment up to 10k. 

Everyone will tell you something different, listen to what they say and process it and make your decision but you must research any investment you plan on buying.

Hang in there and you will figure out what you want to do.