I need advice on roth ira's!

**MonkeyMama** · 03-04-2011, 05:56 PM

You will be pleased to hear the answer.

If you open a ROTH with a new company, they should take care of transferring the funds over. So you don't have to deal with Ameriprise, most likely.

Anyway, the fees on rolling out the money depends if you have any load funds with surrender fees, etc. There shouldn't be any other fees? It just depends what type investments you have. That said, you usually need to get a medallion signature guarantee, to roll retirement money between institutions. The point is to verify your identity. My experience is all/most brokerages require this. It may be free or cost some money to get this done (at your bank).

The fees are moot. They are what they are and you are better off leaving.

Run run run from Ameriprise. I've got nothing good to say about them.

Do not roll your money into a credit union. That leaves you the option to invest in cash. You do not want to invest 100% of your retirement in cash. When you are 26.

I think Vanguard would be good for you. Very low cost mutual funds - in a wide variety of asset classes. Start with their Target Retirement Fund if you just want to put everything on auto pilot. They choose the asset allocation and make it less aggressive as you age.

Wherever you choose to roll the money to - get a ROTH rollover application from there. I believe with Vanguard you open a new account and then fill out the form to transfer the money over from another ROTH. They take care of the transfer.

**Mon3yHungree** · 03-04-2011, 06:11 PM

Thanks for the advice Monkey Mama!

Why is it bad to invest in cash? Better yet, what does that mean exactly? lol

Investing in mutual funds is as I heard, a smart way to have your money work for you. But I'm also scared of losing my hard earned money..... Is the Target Retirement Fund similar to a Roth IRA?

**disneysteve** · 03-04-2011, 06:21 PM

Originally posted by Mon3yHungree View Post

Why is it bad to invest in cash? Better yet, what does that mean exactly? lol

Investing in mutual funds is as I heard, a smart way to have your money work for you. But I'm also scared of losing my hard earned money..... Is the Target Retirement Fund similar to a savings account?

You want your savings to grow over time at a rate that exceeds the rate of inflation. Investing in cash accounts like savings, money markets and CDs essentially guarantees that you will lose money over time. If a CD pays 1.5% interest but the inflation rate is 3.0%, you are losing 1.5%/year in buying power.

At age 26, you should be putting most, if not all, of your money in equities (stocks) shooting for maximum growth for the next 40 years. The long term average return of the stock market is greater than 10% per year.

A Target Retirement Fund is not at all like a savings account. Rather, it is a 'fund of funds' meaning that it is one fund that is made up of several other funds. It gives you instant and broad diversification across various asset classes: small and large company stocks, both foreign and domestic and various types and maturities of bonds. In addition, the Target fund automatically rebalances the portfolio and adjusts the asset mix to become increasingly conservative as the target date approaches. So the 2050 fund is fairly aggressive today but by the time 2050 approaches (and your retirement date), the fund would be much more conservative as you want to decrease risk as you approach retirement.

**creditcardfree** · 03-04-2011, 06:52 PM

A 'Roth Ira' is part of your account title that helps the irs, among other entities, understand the tax rules for your investment. Your investment could be a savings account at a bank or credit union, or even a stock or bond mutual fund at an investment firm. Remember with a Roth Ira you are investing your income for retirement and will be able to withdraw the money in retirement tax free.

Monkey Mama is correct that the firm you decide to go to will request a transfer from Ameriprise. Ameriprise will then send the check to the new company. However, it is still your responsibility to watch the paper work and make sure it happens.

**Mon3yHungree** · 03-04-2011, 07:14 PM

Thanks for all ur help =) I will look into Vanguard asap!

So should I have both a Roth IRA and Target Retirement Fund? Or is just the Target Retirement Fund enough and forget the Roth?

**jpg7n16** · 03-04-2011, 10:23 PM

Originally posted by Mon3yHungree View Post

Thanks for all ur help =) I will look into Vanguard asap!

So should I have both a Roth IRA and Target Retirement Fund? Or is just the Target Retirement Fund enough and forget the Roth?

It's both

The Roth IRA is the account. You can put your money into this account, and then invest it in whatever you want (stocks, bonds, cash, mutual funds, real estate, etc.) You name it you can have it. The IRA is just the account that holds your investments.

Once you put your money into your IRA, you have to invest it in something, what will it be? Stocks? Bonds? Cash? Mutual Fund? Target Retirement Fund?

What they are suggesting above (and I heartily agree with) is go with the target date fund. I really like Vanguard's target date fund anyways, so it seems like a logical fit for you if you open the IRA at Vanguard.

The target date fund will be professionally managed over your lifetime to be properly allocated each year - gradually getting more conservative once you get closer to retirement. You just invest and they'll take care of the rest.

So to properly answer your question, the answer is:
-invest in the Target Date fund, within your Roth IRA

**Scanner** · 03-05-2011, 06:11 AM

I also heartily agree with all of the above.

However, I am going to say something controversial. And it was from watching the conversation above evolve over the internet.

I think you either need to

A. Get basic education about financial planning. This can easily be done through the purchase of some good books (you can even stay frugal by purchasing used on amazon)

or

B. Retain another financial planner that works off of %age or fee-based (I agree on Ameriprise). You don't want loaded mutual funds in your portfolio.

This is controversial because the general consensus here is that financial planners are really not a needed service and this is something you can do yourself. It's true. I am a do-it-yourselfer and am happy with my results.

That being said, you sound totally like a novice.

That's not bad!!!! If you have no interest in learning financial planning, I think you maybe need to have one throughout your life.

I dated a nurse practicioner for awhile. She had one. She has a million dollars in net worth. She was obviously not a stupid person being in her career. Just had no inkling or desire to become educated on financial planning and investing.

I think you have to either semi-dedicate yourself to this necessary life skill or defer it.

Good luck.

PS: I think the forum also did a small disservice to you also. You said you were a "low-to-moderate" risk taker. They told you to purchase a Target Fund. Well, when someone says they are a low-to-moderate risk taker, to me, they are speaking of "Principal Risk" - the forum immediately went into Inflation Risk.

No matter what - a rule of investing and advising clients and knowing yourself is being comfortable with your risk tolerance.

Had you moved that $4378 into a Target Fund. . are you comfortable with the fact it could drop to $2000 tommorrow? How would you feel about that?

(I also feel inflation risk has been way overstated over the years but that's a topic we've visited and revisited in the Investing forum)

**snshijuptr** · 03-05-2011, 07:22 AM

Scanner, I think part of Mon3y's risk aversion is financial illiteracy.

Mon3y, I want to make it clear if you put your money into a target date fund, some time between now and retirement, you will lose money, but the gains you will see will make up for these loses over time. If you put your money into a "safe" account like CD's or savings accounts, you will automatically lose buying power over time. Your balance will always go up, but never as quickly as prices. Over your pre-retirement life, sometimes it will be scarier to be in mutual funds. Still in the end, you will probably have more money if you invest in mutual funds than if you invest in CD's.

For example:
If you put $300/month away for 40 years ($144,000 total)
In a 3% CD: $279,588
In 100% equities: From $250,000 - $1,300,000 (average of $683,461) (I used firecalc.com)

Now with that said, when you put your money in the market, you never want to be 100% equities, and you want to slowly get more conservative as you age. This is what a Target Date Fund does for you. There are other ways to invest that you can learn. Anyway you do it, you need to create a plan and stick with it. If you put your money into cash every time there is a recession (and you will probably live through 8-10 more in your life) you will always end up losing money.

**MonkeyMama** · 03-05-2011, 08:44 AM

Originally posted by Scanner View Post

No matter what - a rule of investing and advising clients and knowing yourself is being comfortable with your risk tolerance.

Had you moved that $4378 into a Target Fund. . are you comfortable with the fact it could drop to $2000 tommorrow? How would you feel about that?

I extremely adverse to risk. A 26-year-old should be MUCH more worried about inflation risk than investment risk, in my opinion. I am just clarifying that I considered her risk.

Being risk adverse doesn't mean I Would recommend anyone in their 20s put a chunk of their retirement money in cash.

@Mon3yHungree - just put your money in a Target Retirement Fund, for now. IF it makes you feel better, choose a Target Date of 2020 or something that is more heavy in bonds and less heavy in stocks. If you choose a Target Date (retirement date) of 2060 it will be more aggressive in stocks. Which would be appropriate for your age. But if you want to start with something less aggressive until you feel more comfortable, that is how you can manage risk a bit - by choosing an earlier target date for your investment. Target date funds get more conservative as you approach retirement age.

I agree with scanner about you needing to get education. I Would NOT hire a financial advisor to that end. I wholly recommend educating yourself.

I recommend Andrew Tobias "The Only Investment Guide You'll Ever Need" - borrow it from your library and take notes. There is also a wealth of information online.

Once you get more comfortable you can change your ROTH investments as it pleases you.

**creditcardfree** · 03-05-2011, 09:55 AM

I also agree with Scanner that you need to get clear on what you are doing financially. Just asking a question here does not give you an education. Reading books on financial planning is great advice. Read a lot here and you'll gleam information. Take your time making this change so that you are not steered in a direction that is not right for you or does not match with your risk tolerance.

**Scanner** · 03-05-2011, 11:31 AM

I'm sorry if I was preachy. . .but I see this happening a lot in life and I suppose saving advice dot com is only a microcosm.

A. Financial advisor/saving advice forum advises age appropriate investment in this case, a Target 2060 Fund.
B. Client buys high based on rec.
C. Market takes a turn
D. Client doesn't really, really understand what that feels like - a huge paper loss.
E. Client sells low on rec. because she feels poorer, the whole world is poorer, etc.
F. Client says WTF was I and those people thinking when they told me this?

Personal risk tolerance always a overrides Pundit opinion in my opinion.

Like I said, I think inflation risk has been overstated over the years. Yeah, I get it - a bottle of coke now is $1.50 and will be $3.00 in 20 years. But it also doesn't account for sometimes technology outpaces commodity needs (new energy sources, beter ways of agriculture, etc.)

**disneysteve** · 03-05-2011, 11:55 AM

Originally posted by Scanner View Post

Personal risk tolerance always a overrides Pundit opinion in my opinion.

I think that's true, but I also think that risk tolerance is very often a function of financial education. Many people incorrectly assign risk to various investments. They look at stocks as being "too risky" and Treasury bills as being "safe" but those assessments fail to look at the big picture, their time horizon, inflation, etc.

I'd say a 26-year-old putting 100% of his portfolio into bonds and CDs is taking a whole lot more risk than a 26-year-old putting 80% into good stock mutual funds and 20% into bonds and CDs assuming this is money intended for retirement 40 years from now.

**jpg7n16** · 03-05-2011, 12:01 PM

The target date plans are already set up to invest for a moderate investor. OP said she was low risk to moderate, and still is young in the early 20's.

A target date fund is the perfect place for a moderate investor.

If you're low to mid risk, you can either just do the target date (which I'd recommend cause it's so easy and is moderate risk anyways), or you can do 80-90% in the target date fund, and 10-20% in a diversifed bond fund.

For the OP's $4300, this would be roughly $3800 in the target date, and the rest in the bond fund.

---------------------

As far as my thoughts on needing an advisor, they are roughly the same as if someone needs a doctor. And people saying that you can just read up online and be perfectly fine, is like saying you can self-diagnose using the internet.

For simple diseases, or common ailments (like leg cramps, or a cold when your roommate just had a cold, or how to treat a rash, etc.) using the internet is just fine. But for some things you'd want a doctor to go to.

And I wouldn't think that just because the information is available online, that everyone can understand what exactly they're reading. Otherwise, how do people fail classes in school? Don't they have access to all the right information?

And depending on which website their search leads them to, they may end up with whole life policies and invest everything in a variable annuity. You can't trust everything on the internet. (you also can't trust every advisor either, so check credentials - get a CFP, or ChFC)

For people who don't understand what's what with their finances, or want professional assistance, I have no issues with them going to an advisor.

You're not a failure if you don't understand the tax implications of exericising non-qualified stock options.

**littleroc02us** · 03-07-2011, 05:43 AM

Investing in Mutual funds is less risky when your doing it with cash you have earned then with leveraged funds. (borrowed money) The point is that you diversify your money between short term, long term, international and bonds to get a good mix and you keep adding to this monthly through automatic deposits and you never touch the money until you retire no matter what the market does. Just think of the people who pulled their money out when the stock market tanked and never put it back in. They just missed a 100% return.

I need advice on roth ira's!