Roth IRA question?

Question

I'm new to investing, and I recently started a Roth IRA with Charles Schwab. In the two months since I began investing, my shares have gone done about 4%. I know when you're investing like this, there's always the potential to lose money. I don't plan to retire until after 2045, so I can be more aggressive, but I guess I didn't plan on losing so much so soon. Is this normal, or do I need to take my money and invest it in another fund? Since I'm not very experienced in this area, I just picked a target retirement fund for after 2040. I guess I just didn't plan on losing so much so soon (it's really not a lot, but when you're young and new to investing it seems like that. I wanted it to grow, not decrease!)

Answer 1

Since the market can (and often does) go up and down 1% to 2% in a single day, being concerned about a 4% loss in two months suggests you may be looking at your balance too often! If your money is in one of the "2040" targeted date type funds, the best thing for you to do would be not to look.  You haven't lost ANYTHING unless you jump ship now, and the chance that you will not earn an annualized average return of somewhere between 8% & 15% between now and 2040 are close to zero.  That means for EACH $100 you have in there today (and leave alone), you will have somewhere between $1,174 and $8,757 in 2040.

The stock market is like a roller coaster, the only people that get hurt are the ones who don't just sit down in the car, hold on tight, and enjoy the ride!

Best wishes!

Answer 2

Gee...well I agree with almost everyone's answers ( to a point) so far. Don't panic...this is " normal"...look at exactly what you're holding... you could just stand there and watch things fall apart... or you can do  even just a little something about it... or completely change to " international'....

Most likely, being new and inexperienced, just riding it out IS your best option, but the guy who said look into small ETF buys may not be too wrong...or even look to buying some individual stocks.... I KNOW ...another guy said ignore that, but taking just a small step or two to remedy or offset some losses may be a nice learning process.

I AM invested in the XME that someone mentioned and it does well...I also bought just 30 shares of ICO ( in coal) and that is up for me  ( from 9 dollars to 12.48)  just nice little offsets to the lagging funds.

So... try something ...or hold on... either way, you're okay...and don't let disappointment shake you...keep adding to the IRA... in the long run it will beat the bank, beat CD's beat Social Security...and you will live to enjoy your patience.

Answer 3

In a word:  no.  Don't change.  It's an old saying, but it's true:  you haven't lost the money until you sell.  

You will hear people tell you international works right now, or value looks good, or have you tried XYZ or ABC?  Please.  Commodity funds are up double digits year-to-date--and so what?  You're in a diversified fund, which absolutely makes MUCH more sense.  Stay put.

I know it feels bad right now, and your stomach hurts when you look at your statement.  But the truth is you have 47 years--YEARS--to go, and two months means absolutely nothing.

Here's the REALLY good news:  as you continue to (regularly, I hope) put money in, since the fund you have purchased has gone down in price, your--for example--$100 per month will buy more shares this month than it did last month.

It's called dollar-cost averaging.  It's a WONDERFUL tool for when the markets are dropping.

Your advisor at Schwab should be telling you about this.  Read this piece on Investing for Beginners from Invest.com; it explains dollar-cost averaging in more detail:  http://beginnersinvest.about.com/cs/newi...

Good luck

Answer 4

Being aggresive has certain risks which in times like we have today become readily apparent.  Normally, at least with the target retiremnet funds I am familiar with, they are not particularly aggressive.  The last 2 months have been particularly distressful, but 4% loss is not too bad during this time.  The Dow Industrial average is down 11.5% during that period.  It is under a disadvantage however.  It is stuffed full of has been financials.

There is no telling how long the value of stocks might continue to decline or how far they might decline.  But since you are in this for the long term,  I think your best strategy is to stick with your plan.  Also look at it this way.  As the market declines and you add more money to your IRA you are buying investments at cheaper prices than you were in the past.  

Think of it as going to a sale at Macy's.