Hello all,I have a total debutant question. I have been investing in the market for the past year or so. A few up and a few downs. Over the past few months I've started looking into saving plans, IRA's and the such. With so much information regarding so many different strategies, I can't for the life of me figure what is the "Prudent" savings plan for someone in their early 30's... Any direction would help.ThanksT
I think you should consider a Tax-Sheltered account first. The Roth IRA is the best (in my opinion). It allows you to contribute post-tax dollars and never pay taxes on the money or the Gains in the account again. You are allowed to contribute up to $2000 per year into a Roth account, and this restriction may go up to $5000 per year. There is also an income restriction that you must meet. (Check out the IRA section of the Fool for more details).As for a strategy, there are so many!! You can open up a self-directed Roth IRA and decide yourself how you will invest the money you contribute (Index funds, Mutual funds, individual stocks, CDs, etc...).Good luck,the hendrys
Thank you "the hendrys". I think what you said is about the direction I will eventually take. One question though. Why are index funds so much more appealing to investors??T
Why are index funds so much more appealing to investors??There is risk involved when investing in Stocks. When you are investing only $2000 each time, you can really only pick maybe 1 or 2 stocks to purchase. There is considerable risk involved in hoping your 2 stocks "beat the market" over the long term. However, if you invest in an Index fund, like the S&P 500, then you are essentially investing in stocks without as much risk. In fact, you are investing in 500 stocks.Also, with an Index Fund, you are guaranteed to match the return of the Index. The goal of a Mutual Fund is to beat the market index. Most Mutual Funds do worse than the market index. So if you invest in the index itself, then you will at least perform the same as the market (no better, no worse).These decisions depend on the amount of risk you are willing to take. You have to weigh your risk versus reward. Pick a strategy, and if you lose sleep at night, your strategy is probably too risky.Good luck in your decisions!the hendrys
A big advantage of index funds is that they generally have a very low expense ratio compared to actively-managed mutual funds. Vanguard index funds, in particular, operate very efficiently and don't soak the investors with big expenses. Another Vanguard plus is the wide variety of index funds they offer. I have Vanguard S&P 500, mid-cap and small-cap index funds. Go to their website, they must have about a dozen index funds, all with low expense ratios.Splitting up some of your money into small- mid- and S&P 500 (which are large-cap stocks) makes sense, or you could go the total market index route. Also consider value vs. growth index funds. Don't forget to put some allocation in overseas stocks, too.
The prudent plan depends quite a bit on the individual -- whether the 30-something someone is single or married, has children, is buying a house, planning to return to school, etc... In general, I'd advise:First pay off any consumer debt. Immediate return.Live below your means and start to save regularly. If you have a retirement plan that your employer matches, participate in it.If you're eligible to contribute to an IRA, compare the benefits of Roth/traditional.Build up an emergency fund in a money market. When you're comfortable with that, investigate investment options.
Thanks to the both of you for the information.I will consider them both in my decisions Thanks a billionTamis
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