IRA vs CD - which is right for me?

[Insaniak]

What would be the best way to go about putting money there? Should I save up money first then put it all in at once? I make 28k a year, I want to incure the lowest fees possible. Ive read that an IRA actually takes tons of fees out.

[mongstradamus]

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@Insaniak wrote:

What would be the best way to go about putting money there? Should I save up money first then put it all in at once? I make 28k a year, I want to incure the lowest fees possible. Ive read that an IRA actually takes tons of fees out.

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It depends on which mutual fund or etf you choose. For example if you want to buy vanguard funds ,you can open IRA thru them and only fees you would have to pay is their expense ratio.if you decide to go thru discount brokerage house I think you may have to pay an fee every time you buy in addition to expense ratio of the fund.

Somebody could correct me if I am wrong I have only opened IRA through vanguard before.

[Insaniak]

Im looking to take 200 or so a month and well im trying to find the best place to put it. Im already contributing to my employer ira of 5%. Im only 21 and I want to start early, I hear the earlier the better. Im just confused about it all.

[coterotie]

sharebuilder.com is where I found very low or no transaction fees as long as you make regular pre-defined contributions.  $3.95 per investment if you use automatice investing.  So on a $200/month investment you will pay 2% in transaction costs.  While this may seem a little high, remember that with etf's you will pay close to zero in ongoing costs.  So you take a slight hit upfront, but with stocks returning an average rate of about 9% and with the SPY paying a dividend north of 2% you will be in much better shape than if you put it into a savings account and then tried to make one investment a year to "save" on commissions/fees.

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@Insaniak wrote:

Im looking to take 200 or so a month and well im trying to find the best place to put it. Im already contributing to my employer ira of 5%. Im only 21 and I want to start early, I hear the earlier the better. Im just confused about it all.

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[Insaniak]

Is this the correct stock?

http://finance.yahoo.com/q?s=SPY

So I should put 200 into this every  month?

[ptilda]

I certainly think that the advice here is excellent and also encourage you to invest in an IRA and any employer programs (stock purchase options, 401K).

In addition, I am big fan of keeping my emergency savings separate from my regular banking, so that it's less tempting to go into it. And you certainly want to have it in a high-yield account. I have mine in Barclays at 0.9%APR, and have auto deposits every paycheck. I also contribute a small amount to CDs every paycheck, alternating between long-term and short-term so that there will be a flow of them coming mature as of this December, which I can choose to reinvest in the CDs, cash out, or invest elsewhere. Keeps from having too much untouchable in case of an emergency.

[mongstradamus]

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@ptilda wrote:

I certainly think that the advice here is excellent and also encourage you to invest in an IRA and any employer programs (stock purchase options, 401K).

In addition, I am big fan of keeping my emergency savings separate from my regular banking, so that it's less tempting to go into it. And you certainly want to have it in a high-yield account. I have mine in Barclays at 0.9%APR, and have auto deposits every paycheck. I also contribute a small amount to CDs every paycheck, alternating between long-term and short-term so that there will be a flow of them coming mature as of this December, which I can choose to reinvest in the CDs, cash out, or invest elsewhere. Keeps from having too much untouchable in case of an emergency.

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I have actually been doing an little bit of both cd wise and savings wise. I have my high interest savings , but also been incorporating 5 year cd ladder also. I don't have as much as most people but i have enough,  but i also try to put in my 5500 in ira as as i can

[CharlieP]

You can withdraw your contributions from a Roth IRA at any time without paying any taxes. I did that to buy a Ford Escape Hybrid (which got totaled about four months after I bought it). But when you withdraw your earnings from a Roth IRA, you have to wait until 59 1/2 or you have to pay income taxes plus a 10% penalty tax for early withdrawal. I withdrew some of my earnings in 2012. I've still got a few hundred dollars in my Roth IRA (probably should have done a total withdrawal instead of specifying a round number) which I"m planning to withdraw tax-free to buy something special for my 62nd birthday.

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@mongstradamus wrote:

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@Revelate wrote:

If you need the money in the 1-2 year time frame, putting it in the market (even the SPY index) doesn't make sense to me: stocks or the market as a whole can go down in that time frame and not be there for a mortgage down payment.

Carrying it in a guaranteed investment is likely a better choice in his scenario. Longer term I think SPY is a good choice.

Withdrawls from either IRA type still has to be for a qualified reason: namely to be penalty free it needs to be for a first time home in this example.  Roth IRA's still have a 10% penalty otherwise as i understand it, though that might be on gains rather than the initial investment I've never looked seriously into it.

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From what i understand about roth ira , there is no penalty when you withdraw early since you are already paid tax on your contribution. Roth IRA is in contrast to 401k and traditonal IRA because you can withdraw early without penalty. Somebody can correct me if I am wrong about that. 

Also for short term investment like 1-2 years. Only way i would go is safely with an high yield online savings account or an cd. 

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[CharlieP]

Everybody's saying SPY (S&P 500 index fund). That basically limits you to stocks from one country, the USA. I'd recommend going with both SPY (S&P 500 index fund) and EFA (MSCI EAFE ETF, the rest of the developed world). Over the past thirty years, US stocks have not had the highest return in any of the years. I'm not sure what percentage you'd want to choose between SPY and EFA, my investment advisor does separately managed accounts where they pick and choose individual stocks.

[mongstradamus]

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@CharlieP wrote:

Everybody's saying SPY (S&P 500 index fund). That basically limits you to stocks from one country, the USA. I'd recommend going with both SPY (S&P 500 index fund) and EFA (MSCI EAFE ETF, the rest of the developed world). Over the past thirty years, US stocks have not had the highest return in any of the years. I'm not sure what percentage you'd want to choose between SPY and EFA, my investment advisor does separately managed accounts where they pick and choose individual stocks.

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I personally went with something like VTI(Total Stock market) and VXUS ( International excluding US). I liked those because it has more coverage of the smaller companies thats usually not covered by sp500 and the such