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Author: superbooma Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75381  
Subject: 5 years til retirement... Date: 12/10/1998 2:51 PM
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I have 5 years until I retire and have only started recently to save. I have a traditional IRA in which I started to contribute to this year. It is invested in the Vanguard Index 500 fund. The facts being such that I might need this money in 5 years is the 500 Index fund to risky to be contributing to ? Should I put some of my IRA into bonds or Fannie Maes ? My social security checks and pension will cover all my fixed expenses when I retire. I also plan to convert my IRA to a Roth...

Thanks in advance...

Superbooma :)
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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7165 of 75381
Subject: Re: 5 years til retirement... Date: 12/10/1998 3:19 PM
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Greetings, Superboom, and welcome. You asked:

<<I have 5 years until I retire and have only started recently to save. I have a traditional IRA in which I started to contribute to this year. It is invested in the Vanguard Index 500 fund. The facts being such that I might need this money in 5 years is the 500 Index fund to risky to be contributing to ? Should I put some of my IRA into bonds or Fannie Maes ? My social security checks and pension will cover all my fixed expenses when I retire. I also plan to convert my IRA to a Roth...>>

You asked almost the same question to "AskFoolU" over in the Fool's School area. I was asked to respond, so here's the reply I sent you:

<<If you know you will not need those funds for living expenses, then you may indeed be more aggressive in investing them. OTOH, if that money will be spent in five years or less, then you do not want to take any chance of loss on the principal. Only you can decide which situation fits you best. Additionally, only you can decide how much risk you will tolerate in the marketplace. For all of us it's quite easy to say we can absorb risk awaiting a payoff that's five to twenty years in the future. Reality has a nasty habit of rearing it's ugly head, though, when literally overnight we see our investment lose 20% or more in value. Ask yourself how you would react if something like that happens to your investment. It can and often does with aggressive investments. Do you have the patience and the inclination to await the recovery? If so, aggressiveness is fine; if not, you may want to consider a more conservative approach.>>

The only difference in your query here is the additional comment concerning using a Roth IRA. In reality, if you will continue use of the Vanguard 500 and if your tax bracket drops in retirement, you may want to keep the money in the tradtional IRA instead. Conversions may or may not make sense depending on your tax rates now and later, how you'll pay the taxes on conversion, and how long the money can stay in the Roth. For details, see my analysis posted at http://boards.fool.com/Registered/Message.asp?id=1040013000441002&sort=postdate

Regards.....Pixy

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