Any ideas to invest around $4000 annually?

[James Boston]

Hedge fund & Individual Stock...2 completely different things.

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Then look for individual stocks that have a book value greater than trading value.

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What?

[michiganfan9]

It means that its currently undervalued.

[adios]

...

[scottgiese]

While it's true that $4k per year contributed and a growth rate of 10% per year gets you to $2M in 40 years, bear in mind that $2 million in 40 years is only gonna buy what $500k buys today (assuming inflation of 3.5%, which is about average).

That's good, but it ain't exactly easy street, just so you know.

You obviously aren't really experienced in investing, so I'd definitely recommend sticking to index funds for a few years at least. The S&P 500 is a popular index you can buy easily enough under the ETF (exchange-traded fund) with ticker "SPY". You buy and sell it just like a stock, but it tracks the S&P index. Mutual funds by and large underperform this index, mostly because they charge fees.

You can take out any amount up to the amount you've contributed from a Roth IRA for any reason, tax-free and without penalty. Profits, you can only withdraw without penalty after 59 1/2.

<<And then someone commented that it is unwise to invest in the index because for the next decade it is expected that the market will decline>>

Whoever said that, don't take investing advice from them. Expected by whom, exactly? Not by the holders of the S&P index and its components -- not many people invest to actively *try* to lose money.

Which is not to say that the S&P 500 won't drop over the next 10 years. It might, but the market doesn't expect that. It's pretty rare to get a negative return on this index over that long a period.

[Delphin]

The most typical advice for investing your IRA money assuming a 40 year horizon would be to go 90-100% stocks.

A decent split would be 50% large cap, 20% small cap, 25% international, 5% cash or equivalent.

For large caps, an S&P500 index is the easiest way to go (which invests in the 500 largest US companies), but you can also pick from the many other mutual funds available that invest in large cap stocks. You can get similar indexes for small cap and international stocks, or pick and choose from the hundreds of mutual funds available in these areas.

Many funds offer $500 minimums or less for IRA accounts, so you can spread it out over a few funds to lower your risk. Investing 333.33 a month might be better than putting all $4k into the market on any one particular day during the year. Do some research on "dollar cost averaging" to find out some of the benefits.

[gvibes]

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The most typical advice for investing your IRA money assuming a 40 year horizon would be to go 90-100% stocks.

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I think one would need an extremely high tolerance for risk to be 100% invested in stocks. I go 75/25 myself at age 26, and I feel I have a high risk tolerance.

[Sniper]

If you can't take risks in your 20s, when can you take them?

Depending on the specifics of your financial situation, you might even consider moving the 25% you currently have in presumably "safe" investments to "speculative" investments to juice your returns.

Now is the time to do it.

[michiganfan9]

I agree, the only reason why i have 100% of my money in stocks is because i'm 15. Sure in maybe 10-20 years from now i'll put it in some mutual funds or bonds or whatever. As well as a roth IRA.

[Delphin]

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I agree, the only reason why i have 100% of my money in stocks is because i'm 15. Sure in maybe 10-20 years from now i'll put it in some mutual funds or bonds or whatever. As well as a roth IRA.

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Mutual Funds and Roth IRAs aren't types of investments.

Mutual funds are just a way of letting someone else pick your investments for you. Some mutual funds buy only stocks, some buy only bonds, some buy both, and some buy neither. When you are investing only a little money, mutual funds are actually one of the best investments you can make because they allow you to diversify with very little money.

The first money I invested in anything other than a savings account was $500 in a mutual fund when I was in 7th grade. That $500 got invested into 20+ different stocks, which changed as the fund manager saw fit. I didn't have to research each of those stocks or decide when to buy or sell any of them. I also didn't have to invest all of that money in the stock of one particular company. Those are the advantages that mutual funds offer. When I say I'm invested in 95% stocks, I mean some individual stocks, but mostly mutual funds that invest in stocks.

A Roth IRA is just a type of account that you hold investments in for retirement. The primary advantage is that any money you make on investments in a Roth IRA is not taxed by the government. The drawback is that you cannot withdraw money before retirement age without a penalty, and there is a limit to how much you can contribute in a year. I wouldn't wait 10-20 years to start an IRA either. Once you have a job and income, a roth IRA is a great idea. I have been maxing my Roth IRA every year since I was 16.

[Delphin]

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The most typical advice for investing your IRA money assuming a 40 year horizon would be to go 90-100% stocks.

[/ QUOTE ]

I think one would need an extremely high tolerance for risk to be 100% invested in stocks. I go 75/25 myself at age 26, and I feel I have a high risk tolerance.

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You have a much lower risk tolerance than you think. At your age, assuming you have some cash set aside to get you through an emergency (2-3 months expenditures is typical), most investors would not be willing to sacrifice the potential gains for lower risk at your stage in the game.

I am 27 and married with substantial savings (including 401k and IRA accounts for retirement as well as personal brokerage accounts) that are always 95+% invested in equities (mostly mutual funds).

The stock market averages around 8-10% annual returns when you look at 10+ year periods in the post depression era. Most investors are not willing to give up those levels of returns when they will not need access to the money for 20+ years. You will not get those kind of returns in CDs, treasuries, bonds, or any of the other lower-risk investment vehicles.

You are trading win/rate for lower variance in poker terms. When you have 40 years left to make money, variance shouldn't be that important. You want to maximize the return you get over those 40 years, and that requires investments that have some volatility. If you are the type who can't sleep when any of your investments are in the red, then it obviously isn't for you. If you are truly interested in getting the most out of your money with a long term perspective, then investing primarily in equities for the first couple decades is a no-brainer.

To simplify long term investing, a lot of companies now offer funds with target dates. Most of the longest horizon funds are targeted at the date 2040 at this time. These funds make sense for young investors who don't expect to retire until 2040 or later. A quick sampling shows that these funds are invested 85-100% in stocks.

100% stock

http://wwwrs.massmutual.com/Retire/P...2/RM3637At.pdf

90% stock

http://personal.fidelity.com/product...html?315792101

88.8% stock

http://quicktake.morningstar.com/Fun...ion=&pmts=

88.3% stock

http://flagship4.vanguard.com/VGApp/...FundIntExt=INT

85% stock

http://www.schwab.com/public/schwab/...tion_desc.html