1. Your Questions About Invest In Stocks Or Ira
George asks…
Should I invest in Mutual funds or Stocks in a Roth IRA ?
I am contributing to 401k and maxing it out as part of my employer's retirement plan. The money
in the 401k is getting invested in Mutual funds. I also plan to open a Roth IRA and would like to
put $5000 (max amount). I have 30 more years to retire. At this point, is it advisable for me to
invest the amount in the Roth IRA in mutual funds or in stocks ?
Steve Winston answers:
You will get a bunch of different answers to this...and that's because no one but you can really
answer the question properly.
I also know this probably won't be a popular answer in "the community" because I am a
professional...and this site is popular with the 'we hate professionals' crowd. But, I wanted to
take the time to give you some honest and unbiased info...regardless of voting results.
The fact that you are asking the question shows that you are probably not
comfortable/experienced in picking stocks...and that brings up the question... Are you looking to
buy stocks and hold them for the next 10-30 years+...or try to trade them like all the "hype" out
there tells people they should do now?
Mutual fund investing is what I call "investing with training wheels"...you pay high fees and get
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2. diluted returns...but you have an 'element' of reduced risk...possibly...too. Also, $5,000 is what is
considered "smaller amounts of money" in the professional investing world...so many
"professionals" won't bother working with you or educating you either...because they're looking
to "get paid"!!!
Your choices at this point are:
*Find an advisor that will work with you...based upon a growing long term relationship
potential...and/or...
*Start educating yourself with various books and websites, etc. (Start learning about it)
*Pick a mutual fund or five and "diversify" your money...if you have 30+ years and will continue
contributing each year...you should probably go with small cap aggressive stuff (okay,
Small/Medium), especially when the market is still about 2/3 what it was and you have a long
term outlook....but others will say "always diversify" (the watered down risk, remember) and tell
you to buy small/medium/large funds in growth or value catagories and short/long term bond
funds...etc.
*Pick one or two stocks and buy what you can with the money...but with enough shares it will
actually make you money when it goes up (this is the "riskier" approach)
Either way...keep funding the company plan & as much as possible...keep feeding the
Roth...then as the market recovers you can build up the "balanced" approach...but trying to
make some amazing returns while the market is still full of such opportunities...is
rational...especially for some young enough to have 30 years to work with....maybe, if done
right...It won't take so long to reach 'retirement' afterall.
Note: There are a number of websites that you can visit and start learning on our own too...feel
free to email me for them if you'd like...otherwise...I hope this helped...don't be a sheep...think
for yourself.
Lizzie asks…
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3. Invest in an IRA, Stocks or 401K?
I'm faced with a challenge. I've talked to retirees, a financial adviser (which was a complete
waste of my time), the vice president of my bank, and the Human Resources/Benefits Manager
with my employer. My co-worker received his Quarterly Savings Statement for his 401K plan.
He's lost $14,000.00 this year, $9,000.00 was lost this last Quarter alone! Even with the
Economy sinking I can still afford to put away almost $400.00 a month for retirement, I'm just
not sure where I should put the money. I want it to grow quickly and without a lot of risk but I
know that's unheard of. My employer just increased their contribution to the 401K plan; they
now contribute 50 cents for every dollar I invest, up to 6% of my Gross pay. Would it be wise to
spread the money out into different accounts? Has the Stock Market really bottomed out and
has no way to go but out or up? I'm not looking for the correct answer, just honest answers from
your experience or your expertise.
Steve Winston answers:
Like others said, before anything else you want to max out your employer contribution in your
401k. You're basically foregoing potential salary if you don't! Once this is maxed out, if you're
young and looking to invest for 30 years or more, put the extra into a Roth IRA. You're taxed
initially on it but it grows tax-free so you don't pay tax on the capital gains.
Note that you can probably diversify within the 401k plan, depending on what the company
offers. Often it's not just a single stock or fund but a diversified portfolio in itself; in mine, e.g., I
choose a percentage allocation of my monthly investment between four or five different mutual
funds.
The stock market is very likely going to rebound within the next year, but it probably won't be
immediate. There are no guarantees, as I'm sure you're well aware; historically though it goes
up and long-term investments are generally considered safe. Wanting it to go up "quickly" is
understandable but you have to shake this notion--all that matters is the date you plan on taking
it out. If that's sufficiently far in the future, any present ups and downs are of little consequence.
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4. Sharon asks…
Should I Rollover to Traditional or Roth IRA, invest short term then
cash out?
I have 401k from my former employer. I'm gonna need the money soon so I will be cashing it
out sometime in the next couple months. It's only the couple thousand. I was gonna cash out
and pay the penalties but I think I have other options. I was thinking of rolling over to an IRA,
invest in some stocks short term and hopefully increase my funds then cash it out. What
should I do?
Steve Winston answers:
Cashing out at any time may cost you up to 35% or more depending on your tax bracket and
stocks are not meant for short term investment - you could wind up losing more of your money -
doa direct rollover to an IRS and try and wait as long as possible before withdrawing anything
and there is no need to withdraw it all at once - as soon as you do that - you trigger the penalty
and taxes on teh full withdrawal
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5. Linda asks…
Some here suggest that I should sell my stock and invest in Ira's?
what are you opinions on this?should I pull all of my stock or ride out the storm?
Steve Winston answers:
Whoever is telling you this, is mixing a tax/retirement vehicle with a type of investment. Stocks,
bonds, mutual funds are types of investments, whereas IRA - traditional or Roth are a method of
setting money aside for retirement. Based on certain tax rules, a traditional IRA may get you a
tax deduction, the Roth will not save you taxes when created, but no monies will be taxes
provided you use the money for retirement and comply with applicable tax laws.
To your question... Historically, the market recovers within 6 months to two years. After this
mess, I am inclined to say it will take two years, my opinion. If you don't need the money and
you are invested in sound companies, let it ride. To sell now will be what I like to call a money
making opportunity - for me. Love it when people panic and sell low - I then can buy low. Just
wish I had more money... It is like a huge garage/yard sale out there.
Good luck - hope this helps.
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