I am nearing 30 and am finally creating a retirement plan. Ijust maxed out my 401K contributions and would like to create a Roth IRA to supplement it. Because of volatile market conditions, I am leaning towards investing in bonds for a year or so until the market points upwards again. (I look at the SP500 and Dow Jones and having a Zero or negative returns....)The government issued I-Bond which guarantees 3.4% above inflation rate appeals to me. At least I am guaranteed 5-6.5% percent annual returns until I decide to move into the market again. Two questions:1) Is it possible to create a Roth IRA based on I-bondsand2) Anyone have any feedback on whether this is a Foolish idea?Thanks for your help!
tgheen writes:I am nearing 30 and am finally creating a retirement plan. I just maxed out my 401K contributions and would like to create a Roth IRA to supplement it. Because of volatile market conditions, I am leaning towards investing in bonds for a year or so until the market points upwards again.Just to play devil's advocate here -- if you thought that equities stood to lose another big chunk of value before bottoming out, your strategy would make sense. If they've already pretty much bottomed out, though, this would make a time you'd want your money to be in stocks so that you get the benefit of the ride back up. No?Much as it hurts me to see my 403b funds take a beating this year, I keep putting my new contributions in equity funds because (a) I'm investing for the long term and won't be withdrawing for a couple of decades at least, and (b) I'm not smart enough to call market turns to try to play it any other way.
I second fodonnell's post.If you are 30 and investing for retirement, I assume you have many years to stay invested (10+). I would rather have my money in Stocks (maybe an Index Fund).This is a decision that is better left to each individual. It all depends on your Risk Tolerance. If you can sleep better at night knowing that you are getting a 6.5% guaranteed return, then Great. If, however, you want better returns, then you have to be able to stomach those bad years that result in a low or negative return.Just an FYI:$10,000 @ 6.5% turns into $33,000 over a 20 year period$10,000 @ 9.0% turns into $56,000 over a 20 year periodThe Stock Market Average yearly return is 11%.Weigh the risk versus reward using your risk tolerance level.Good luck,the hendrys
You question seems at first blush to be straight forward: "I am nearing 30 and am finally creating a retirement plan. Ijust maxed out my 401K contributions and would like to create a Roth IRA to supplement it."However, before I can provide a good response, I need a little more data.February isn't even over and you said you maxed out your 401(k). I believe the maximum contribution level for any employee is 15% and the maximum contribution this year is about $10.5K. I may be a little off since I retired several years ago and no longer have an option of participating in a 401(k), but I should be close. However, for illustration, I use these numbers. If you have hit $10.5K you've already made $70K this year and, unless your firm matches up to 15%, you've effectively cut yourself short on their match. I posted an example of how some high income earners short themselves by contributing at a percentage higher than what will max company matching a week or so ago. If these assumptions are correct, you will probably exceed the maximum income limits allowable for ROTH contributors. If this is the case, I would invest in a S&P500 index (Vanguard is probably the best) because there is minimal realized gains during the holding period. ROTH gains are tax free. The next best alternative is tax defered gains. Investing in the index will typically beat even the best annuity.Regards, pmcw
pmcw007,When tgheen said: "Ijust maxed out my 401K contributions ..." perhaps this referred to just recently having signed up for maximum contributions, possibly starting this year, as opposed to having already hit $10,500.Phooley
Yes, you are correct. I wish I earned 70K but I don't! I meant to say that I signed up for 16% of my pre-tax salary to go to 401K. All of your responses are very helpful. Thank you!!
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