What should I put into my Roth IRA? I'm 18...?

Question

I am looking into getting a roth ira, but I am kind of confused as to what to put in it. I already have a brokerage account at Schwab, so I think I have a lot of options. What should I put into the account (cds, mutual funds, index funds, individual stocks...)? I have been looking at index funds, but have found that I don't really know what I am looking for.

Also, I have a part time job and have about $3000 that I won't spend. How much should I invest, and how much should I leave in my money market account?

Answer 1

To answer your first question, I think you should put money into your Roth IRA.

I'm also 18, and have been planning out my investing portfolio and trading strategies for quite some time.  Unfortunately, gas prices and a few bad car maintenance problems took me out of most of my spare money.  From your perspective (used to be mine), this is what I see:

Individual stocks - it takes at least 20 to have a well-diversified portfolio.  Even at cheap brokerages, this should be around $100, 3.3% of your money knocked out.  Even then, it is wise to diversify beyond stocks into bonds and international mutual funds and ETFs, etc.  After account fees, those commissions will hit even harder.

There is only one way to circumnavigate this problem, and it is through Zecco.com's offer of 10 free trades/month with $2500+ equity.  However, I suggest at least a hundred hours of research so that you really know where you are putting your money, and have even the slightest chance at outperforming the indexes.

That being said, it is likely not your best option to purchase individual stocks right now, unless you put in the research time necessary, use Zecco, or wait until you have more money.

Until then, I would likely go with mutual funds and ETFs.  However, it would still be prudent to find ones with very low fees (some are up to $50/trade, and more are $30 for complete in and out).  There are some lower ones, though.  I'm not sure if there are any free ones, but I think there may be.  It's been a while since I researched mutual funds (read Morningstar guide to mutual funds book if you want to know more).

Our last resort is ETFs, and perhaps your best options.  The S&P 500 has 500 stocks in the index, and you can buy one of the ETFs for it for a commission equivalent to one stock trade.  I would suggest splitting your money in a few index ETFs, it is what I will be doing once I re-accumulate some money.

Once you have more money and more research/time, you will have other options.  Best of luck to you.

Answer 2

I'm just going to shoot out a few ideas for you to think about...since you already have a brokerage account, you know a little about investing...it will be no problem for you to keep an eye on the IRA account, too...so go with an aggressive style for awhile... what's working best in your brokerage account? a stock? an ETF? ... a hot " sector" fund? THAT'S what you get into the ROTH !! Try to roll up big gains there... you have years and years to be cautious later...

but if your aggressive style works out, you have this nice chunk working for you... and no matter how many times it doubles...triples..or whatever..IT'S ALL YOURS IN THE END.

So, start with about $ 2000. out of your $ 3000.    Forget the index funds... you are looking to " concentrate" on winners...

if you trade stocks, look at some of the ag/chem companies..or nat/gas for awhile... if you go " funds" , go international...  just keep your eye on things... don't be patient, dump losers ( or even slow gainers)...at least for a few years.   BUT ...BUT... do not take that approach with ALL your investments...be reckless ( for awhile) in ONLY the ROTH...

...and be generous every year in adding to it... but when things change...marriage? kids? house? education expenses?   and you can't add to it... you will still have something sizeable working for you.

After a few years...and maybe 10, 12, or 15 thou working for you, you can almost forget about it...find two, three good funds and let it ride 'til 60.

Answer 3

Since you're 18, I would recommend putting as much as you can afford in your Roth.  Why?  Because it will grow tax free, and the more funds you commit early on, the better you'll be in 45 years when you're ready to retire.

Again, since you're just starting, you can afford a little risk which suggests aggressive mutual funds, or speculative equity funds.  

Good luck!  Most 18 year old's aren't so savvy when it comes to long term planning.

Answer 4

I have a Schwab ROTH IRA and I'm 23

Take a look at their One Source (NO load NO Fee) Mutual Funds and find one that interests you like SWANX.

Those are the best funds to start out at because they don't have any crazy fees that most other funds have and you don't have to pay to purchase the shares like an ETF.

Answer 5

Since you're new to investing, try an index ETF like the IWV Russell 3000  fund. Consider putting some money also into the Russell 2000 for  small caps IWM, and an international ETF like EFA. When you're more experienced, then look at individual stocks.