IRA's \ Bonds

[Anonymous]

Looking to start my retirement fund at 19. I just started a new job for my local county government making $10/hr part time but will start full time in a month at $12.95/hr. Through the government I get 11.20% matched for my pension through their PERF plan. I will be working 40/hrs a week so  heres my math: 

40/hrs X 12.95/hr = 518 

$518 X 52 weeks = $26,936/yr before taxes and paid holidays

$26,936 X .2=  $5,387.2 taken out in taxes every year

$26,936 - $5,387 = $21,549/yr after taxes 

So if my employer matches 11.20% that would be after taxes also so it'd be $2413.48/yr they would match. 

I'm looking to deposit an extra 3-5% a year into a IRA or bond of some sort to gain additional retirement fund. 

My expenses are around $750/month for me and fiance and I am in school full time. 

I would really like some insight into doing this as I am young and would love to start an early retirement fund

[Anonymous]

You are way ahead of your peers, fantastic!

What are your goals? Two common ones come to mind: saving for retirement, or saving a downpayment for a future house purchase.

The difference is important because in the retirement case you have a fifty year time horizon whereas if it is a downpayment you could want the money within the next ten years.

In the retirement case it is simple. Go to vanguard, open an IRA, find the mutual fund named after the year you plan to retire, or close, and invest. Done. You could do something much more sophisticated, but I would suggest reading some investment books and educating yourself considerably first. The vanguard fund will serve you very well in the meanwhile, and for life if never reading a finance book is your thing. The funds are low cost and give you a mix of stocks and bonds appropriate to your age. You just put money in and forget about it.

On the other hand if you want the money for a downpayment it is a little different, you want more bonds in your fund and few or no stocks. You can still go to vanguard but pick a bond fund or perhaps split your money between a bond fund and a stock fund with no more than 20% in the stock fund.

The reason for the difference is that in the very long run, like the fifty years until you retire, stocks have a much higher return, but in the shorter term, under ten years, they can really bounce around. You might get unlucky and have to take money out in a bad year at a loss in the short term.

So for short term, under ten year, saving like building up a down payment, prefer bonds.

[Anonymous]

Thanks I tried to pay attention as much as possible during finance classes in high school and into college (currently in college still). I am also looking long term and do not plan on purchasing an expensive house. My plan is to buy a house at around 40k with about 50% of a down payment. Where I live you can get a decent house for that price. But what books would you recommend? I've read on different sites about investing and am scared a little because I want to invest now and avoid having to worry about if Social Security will be around or not. Also is there any other recommendations for when I get married? I am currently engaged at 19 but dont plan on getting married til after college so I was hoping to get a head start on my future wife's IRA/Savings  

[tacpoly]

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@Anonymous wrote:

Thanks I tried to pay attention as much as possible during finance classes in high school and into college (currently in college still). I am also looking long term and do not plan on purchasing an expensive house. My plan is to buy a house at around 40k with about 50% of a down payment. Where I live you can get a decent house for that price. But what books would you recommend? I've read on different sites about investing and am scared a little because I want to invest now and avoid having to worry about if Social Security will be around or not. Also is there any other recommendations for when I get married? I am currently engaged at 19 but dont plan on getting married til after college so I was hoping to get a head start on my future wife's IRA/Savings  

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Please read:  If You Can:  How Millenials Can Get Rich Slowly.  It is only 16 pages long but will give you a good idea how to save and invest realistically.  Here's a link:

http://www.etf.com/docs/IfYouCan.pdf

I've recommended this many times on the forum.  I don't know if anyone has actually followed through and downloaded/read it, but it really will get you started (and c'mon, it's only 16 pages long).  It doesn't pull any punches about your chances of becoming rich.

[Anonymous]

Just downloaded it right now. I will try to read it on my down time at work. But if its as good as you say it is than the people who haven't downloaded it/read it are a bunch of morons haha  

But anyways I'll reply to this thread again once I read it and I'll give you my honest opinion of it. Thanks ahead of time! 

[Open123]

In my view, for the moment, it's best to avoid any kind of long term Bonds.  All things being equal, interest rates should rise over the next 12 - 24 months.  Unless you have a compelling reason to believe this is not the case, it's best to avoid any kind of mid to long term fixed income assets.

Conversely, if you do believe long term rates will decrease, then buy long term bonds for your fixed portion, or something like TLT.

Good luck!