Hello, I'm very new at this. Investment is not my strongest point. However, I'd like to change this. I just read the below blog-post "How to make Money in the Stock Market":
https://www.mrmoneymustache.com/2011/05/18/how-to-make-money-in-the-stock-market/
And I absolutely love it. It told me where to invest (and I already know that index funds are the best and I have an account with Vanguard). But, I have my fair share of questions:
- I have a "Roth IRA" with Vanguard. Over the last 6 years, my $5,000 has more than doubled. But should I instead the move the money into "The Vanguard Total Stock Market Index Fund"?
- I have other retirement accounts scattered all over the place, should I do the same as with my Roth IRA?
- After you make your investments, what are the tax implications? Can I put the money pre-tax into a "The Vanguard Total Stock Market Index Fund"? What happens when I make withdrawals? Do I pay taxes then?
- Should I make monthly contributions from my checking account?
I absolutely love the free time that MMM brings to one's life. I want the liberty to pursue other things in life and want this.
If this is the wrong place to post this question, then please let me know where it would be a better option.
Ok, for starters, a Roth IRA, like a Traditional IRA (tIRA), 401k, or post-tax account is an investment vehicle in which you hold stocks like a (Vanguard) TSM Index Fund, or an S&P 500 Index Fund, or a REIT Fund, or Emerging Markets Fund, shares of IBM, etc. See the difference?
So, I don't know what fund you doubled your money with in your Roth IRA, but if it's doubled in 6 years, why ever would you want to change it?
If you have other accounts scattered all over the place, it depends on what types of accounts you have. In any case, you can likely consolidate them all in one place, such as at Vanguard or Fidelity. Maybe you've got IRAs that you rolled former employers' 401k plans into, or perhaps you've got a 401k or two sitting with a former employer. You can very likely roll them all into one IRA at Vanguard or Fidelity.
If you put pre-tax money into an account, it is by definition an tIRA or a t401k (Roth accounts are made with post-tax dollars), in which case you cannot withdraw the money without penalty before age 59 1/2 without penalty (except in a few limited circumstances). Once you begin withdrawals, you will pay ordinary income tax rates on them.
Contributing regularly to an account via Direct Deposit is an excellent way to "set and forget" your investment contributions, and by that method you will engage in what is called "dollar cost averaging," which means that, when stock prices are down, you are buying more shares; when they are up, you are buying fewer (e.g., if you invest $100 each payday, and shares are $20 each, you will buy 5 shares; if shares drop to $10 each, you buy 10 shares) -- this is generally considered a good thing.
