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Author: Seinfreak37 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76418  
Subject: Opening Roth IRA with markets tanking Date: 9/17/2008 11:45 AM
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I've saved up $3000 to open a Roth IRA with Vanguard (target retirement fund 2045 - VTIVX). $3000 is the minimum to open an account, and the low/no fees appeal to me. I am 28 years old, so this is a long-term investment, and I plan to dollar-cost average into the account every month after my initial $3000 investment.

With the markets doing horribly, I will likely see an immediate loss on my initial $3000 investment. Would I be better to keep adding to my $3000 in savings (making about 3% interest) and then open the Roth IRA later this year (or whenever the markets calm down)? Or should I just open the account now with my $3000 initial investment and dollar-cost average into the account over the next few months to max it out, and not look back?

Methinks I should take advantage of the low prices now since this is a long-term investment, but this is my first foray into investing for retirement, and would like some feedback.
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Author: joelxwil Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 63852 of 76418
Subject: Re: Opening Roth IRA with markets tanking Date: 9/17/2008 12:34 PM
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not look back????

You should always look back. Otherwise, how will you ever learn from experience? You cannot change the past, but you certainly can learn from it.

I would not put any money into the stock market at this time. Take this opportinity to study investing. Read some good books on technical and fundamental analysis, and wait for a better time to enter the market.

If you do open a brokerage account, make sure that the money market fund associated with it invests only in treasuries. That will not give a high yield, but as you may have read, one major money market fund has "busted the buck", and others may follow. If there were major redemptions from money markets we might find out just what their paper is worth, and it might not be much.

When you read an article on investing that says "invest now", or "hold your current positions" because "the market always comes back", ignore that nonsense. The Nasdaq was 5000 in the year 2000. Did it come back? Will it ever? Besides, that is irrelevant.

Do not confuse being an investor for the long term with holding something forever. All investment vehicles have their ups and downs, and you want to maximize your profits by taking advantage of that, rather than having that take advantage of you.

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Author: ViciousHenryFool One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 63853 of 76418
Subject: Re: Opening Roth IRA with markets tanking Date: 9/17/2008 2:15 PM
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Great question, I was just about to ask the same thing. I'm in just about the same situation that you are, about the pull the trigger on an index fund in an IRA and have been wondering if I should wait or not. I'm not trying to time the market exactly, but I feel like starting now would be poor timing to say the least. Would putting this $3000 in a 6 or 9 month CD be a better idea?
I would love to hear more responses on this...if you Fools out there were just starting out, what would you do?

Thanks
-VHF

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Author: vickifool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 63859 of 76418
Subject: Re: Opening Roth IRA with markets tanking Date: 9/17/2008 4:04 PM
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You can invest your Roth IRA in cash or a CD or a money market fund if you want to. And move into an index fund later.

However, you might not be able to do that at Vanguard. You can call them up and ask them--their telephone service is pretty good. (Not perfect. Story omitted.)

OTOH, when the market is down that just means it is on sale. So now is a good time to buy. It might go down farther, but it might not. Joexwill times the market. I doubt that anybody can do that successfully.

If I was just starting out now, I'd buy the index fund and be done with it.


Vickifool

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Author: Watty56 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 63860 of 76418
Subject: Re: Opening Roth IRA with markets tanking Date: 9/17/2008 5:24 PM
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There were lots of people who were very excited and unworried about be making their first investment a few years ago during the “dot com” bubble when the market seemed like a “can loose” opportunity.

The market could keep going down, but now is a better time than back then.

Greg

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Author: gubydala One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 63871 of 76418
Subject: Re: Opening Roth IRA with markets tanking Date: 9/18/2008 1:51 PM
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Vickifool wrote:

You can invest your Roth IRA in cash or a CD or a money market fund if you want to. And move into an index fund later.

However, you might not be able to do that at Vanguard. You can call them up and ask them--their telephone service is pretty good. (Not perfect. Story omitted.)


I have a Roth at Vanguard. They do have various money market funds, TIPS, bonds, etc. And they sell CDs too. Although I haven't tried doing that within the Roth one probably could. Like you said, telephone service can talk people through.

One big factor that nobody has mentioned -- if the OP doesn't put the money in a Roth by filing time next year s/he's lost this year and can't get it back. That's a good argument for putting the money in the Roth, even if it's in a conservative investment.


OTOH, when the market is down that just means it is on sale. So now is a good time to buy. It might go down farther, but it might not. Joexwill times the market. I doubt that anybody can do that successfully.

If I was just starting out now, I'd buy the index fund and be done with it.


I'm in my 50s and wishing I had $3000 to put in right now. I've been doing regular monthly $500. I've lost a ton like everybody else, but even at this age my time horizon is long enough to make it worthwhile to take some risk.

But as Suze Orman and some other advisers say -- you've got to do what's going to let you sleep at night. If trusting the market will go back up isn't for the OP, a Roth with conservative investments is a decent compromise. At least that 3 per cent a year won't be taxed.

Guby

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Author: Rayvt Big gold star, 5000 posts Top Favorite Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 63887 of 76418
Subject: Re: Opening Roth IRA with markets tanking Date: 9/19/2008 5:55 PM
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With the markets doing horribly, I will likely see an immediate loss on my initial $3000 investment. Would I be better to keep adding to my $3000 in savings (making about 3% interest) and then open the Roth IRA later this year (or whenever the markets calm down)? Or should I just open the account now with my $3000 initial investment and dollar-cost average into the account over the next few months to max it out, and not look back?

What you are doing is not DCA (dollar-cost averaging) but Peridodic Investment. Lots of people (even financial advisors) confuse the two. DCA isn't good, PI is very good.

The best time to invest is when the market is down huge. That's the "buy low" of the rule---buy low, sell high.

With the markets doing horribly, I will likely see an immediate loss on my initial $3000 investment.
So????? Are you investing for next week or for the next 30 years?

I personally don't like the target funds. It's a gimmick to have a part stocks and part bonds allocation. At your age you should be in all stocks and no bonds.

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