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I have a question. I am thinking about opening a Roth IRA. From what i've been told, you can buy either stocks or mutual funds in it. Do you normally buy a fund and just keep it in there for the long haul and buy it again when the next year comes around? Or do you normally buy it and sell it if it gets pretty high? Or is it better to buy individual stocks and sell when it gets high and buy back in again? I've always heard people say just to buy and let it sit and it will do ok in the long term, so don't get discouraged if it goes down like what is happening nowdays, but that is assuming you chose the right stock or fund.
As far as taxes, don't you get to forgo taxes even if you make gains/losses while in the Roth IRA since it is pre-taxed already? What about commissions charged for each trade? Do those get waived? Can you get the commissions/fees to be tax deductible? Thanks for any input.
I have both stocks and funds in my Roth. Most of the stuff I buy and forget about, but I sell occasionally and get something new. My understanding is it grows tax free, which is the big perk.
I manage mine closely with a combination of long-term and mid-term holds. I try not to buy anything I would have to sell within a few months. I have some mutual funds, some stocks, some ETFs, and some options with 2010 and 2011 exercise dates.
It is always good to diversify, which is what mutual funds do. Mutual funds are a hundred or so different stocks, in a certain area or industry. Mutual funds are also cheaper to buy as far as fees are concerned. The market increases on average of at least 10% a year over long term which is better than you can usually expect by buying and selling stocks. Some times it is a good idea to sell mutual funds and move to a different fund. If the mutual fund that you have chosen is underforming others in the same area, aggressive funds compared to other aggressive funds, than it is a good idea to switch.
Taxes aren't an issue in a Roth, JL. Commissions won't be waived unless perhaps you happen to be good friends with the broker (). And no, commissions aren't deductible either.
There are a million different strategies you could use in your Roth. One simple one would be to buy ETFs in different sectors/asset classes and each year allocate the most money into the one that has performed the worst over the previous year. The idea is that you'd be buying at the low end of the cycle, buying more shares at lower prices, which should (hopefully) pay off when that particular sector/asset class rebounds.
Your ROTH should match your risk tolerance and what you have in your mutual funds inside of your ROTH should match that. That will change over time and should be reviewed periodically. If you are an aggressive investor you probably want an 80/20 split of equities (stocks)/bonds. If you are moderate, a 60/40 stock/bond mix, for example.
I would highly recommend the book by founder of Vanguard called The Little Book of Common Sense Investing: How to Guarantee Your Fair Share of Stock Market Returns [url=http://www.amazon.com/Little-Book-Common-Sense-Investing/dp/0470102101]The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns (Little Books. Big Profits): John C. Bogle: 9780470102107: Amazon.com: Books[/url]
His main advice - buy an S&P500 indexing fund with the minimum management fee you can find and sit on it. There are also programs that change the makeup of your portfolio from relatively riskier funds like an S&P500 index to less risky bond holdings as you get closer to retirement. This is to help the money grow at first when you're years away from needing it and when the portfolio has time to rebound if the market crashes. When you're closer to needing your money around your retirement age, stock market crashes are much more damaging, as you don't have the luxury of waiting for the market to rebound, hence the move to bonds.
Another good book is "A Random Walk Down Wall Street". It basically says that on average all investors can do no better than the market. If you think you can outperform the market, you have to ask yourself why do you think you can beat so many other investors who have pretty much the same information as you or more. Also trying to time selling and buying to peaks and troughs more often than not doesn't work out, as these are not very predictable. Peaks might not actually be peaks, and bottoms might not actually be bottoms.
Another thing to watch (Vogel talks about it at length) is management fees. If you're beating the market by 1-2% (which is very hard for long term), but you're paying 2-3% in management fees and additional commissions on trades, you're likely to end up significantly below the market.
Most big and attractive funds that can boast consistently beating the market have only done that for a few years. Very few if any have beaten the market for 20+ years, so if you're looking for long term, be wary of expensive funds that boast high returns - they usually don't last, and there is no way to predict when they'll stop beating the market. Chances are if a fund is already popular and well-known for its performance, it's overpriced.
1. It all goes towards how old are you
2. it all goes towards your risk tolerance
3. Taxes not an issue on IRA, as far as you do not touch funds, as in $$. You will be badly penalized, if you do. You are allowed to do ONE rollover once a year. You have to hawk your IRA tax doc-s, or IRS will nab you. I know.
4. Decades proven method is - buy and hold. But that's for VERY long run. Also, you do NOT buy when stock/fund/market is on the run and climbing up. You want to find good companies, as it all goes in cycles, that are currently
low" on a cycle, buy them, and forget them.
5. No matter what, real estate keeps coming back. I have Real Estate fund with American Investments, that went through all kinds of market perturbations, but overall, is 25% return. I am NOT looking for rockets in my investments. This is quite well with me.
6. The rest of what was already told is valid.
I have both stocks and funds in my Roth. Most of the stuff I buy and forget about, but I sell occasionally and get something new. My understanding is it grows tax free, which is the big perk.
For now. I have a roth IRA also, but just wonder if the government changes the rules and eventually they look to Roth IRAs for money for their spending problem.
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). And no, commissions aren't deductible either.
