Just opened up a Roth IRA - now what?

[Anonymous]

I already had an existing eTrade account from when I graduated college and some stocks that I had been given while I was a kid were transferred into my name (well, I think they were always in my name but I now have control over the account). Over last summer, I bought a few more stocks and they have been doing well. About a month ago, I opened up a Roth IRA with eTrade and just transferred over the remaining cash that was in my brokerage account over to the IRA. So I just have a bit of cash sitting in there.

Forgive me, because I am early 20's and very new to investing/managing my money. Not yet eligible for my employer's profit-sharing plan so I wanted to start something for retirement even though it seems so far off at this point! But, I truly have no idea what to do now. Do I buy stock with it like I would in a traditional brokerage account? Do I let the cash sit there? I don't think it accrues any interest.

[Anonymous]

If you're in your 20s you want to invest that money, probably fairly aggressively at this point. I don't know how it works with eTrade but a lot of the investment companies (Vanguard, Fidelity, fed. govt. TSP) have options for lifecycle investments where you select your estimated retirement year and the risk of the investments is geared off that.

[Anonymous]

OP here. Can I transfer the stock I already own that's in the brokerage account to the IRA?

[Anonymous]

Vanguard Total Stock market.

[Anonymous]

This is a question you should direct to e-trade. When you signed up for the account, didn't it have investment options you had to choose?

[Anonymous]

Anonymous wrote:This is a question you should direct to e-trade. When you signed up for the account, didn't it have investment options you had to choose?

OP here. No, it didn't.

[Anonymous]

Anonymous wrote:OP here. Can I transfer the stock I already own that's in the brokerage account to the IRA?

No. You can transfer stock from one taxable account at a brokerage to another without selling it, but your contribution to an IRA will always be in cash (except maybe if you are Mitt Romney and cheating)

[Anonymous]

I would put it in a cheap total stock market index and forget about it

[Anonymous]

OP again. I understand that I should aggressively invest it and have the majority of it in stocks. But how do I pick from all the funds (there are so many!) and frankly, I don't understand what the investment in a fund actually is. How do I tell where the money is actually invested?

[Anonymous]

Anonymous wrote:OP again. I understand that I should aggressively invest it and have the majority of it in stocks. But how do I pick from all the funds (there are so many!) and frankly, I don't understand what the investment in a fund actually is. How do I tell where the money is actually invested?

Pick a fund with low fees (Vanguard funds are typically low-cost). Index funds are good because they key to one of the major indices (not a good definition, sorry). PP's suggestion of Vanguard's Total Stock Market fund is a good one.

[Anonymous]

PP again. Or choose a fund that keys off your potential retirement date like the Vanguard® Target Retirement 2050 Fund (or whatever year you think you'll retire).

[Anonymous]

Congratulations! And don't be embarrassed about asking advice, you are still ahead of the majority of people out there.

So, the money inside the account works pretty much like any other brokerage account. You can buy and sell stocks/funds or keep it as cash. The only differences are around putting money in and taking it out (both of which are restricted).

Having said all of that, there are many things that would be fine to do with the money in your account. Here is what I think is the simplest. Invest the entire amount in the Vanguard SP 500 index ETF (exchange traded fund- it is a stock that basically works like a mutual fund) - ticker VOO. Then leave it there. Forever. Make a new contribution each year and do the same. Since you are in your early 20s, you should be investing pretty much exclusively in stocks for at least the next 20 years.

[Anonymous]

Congratulations you did something great by opening a retirement savings account in your early 20s.
Time and regular contributions are your very powerful friends.
I opened my first IRA in my early 20s with about $1200, while temping. Now it is 20 years later and those retirement savings (now including 401k, traditional and roth ira) are $500k.

Here's what I have learned:
- buy the market with a cheap index fund. This means you may never out perform the market, but you will never lose more money than the market either. This is why a broad index is a better choice for the overwhelming percentage of your savings than individual stocks which may go to zero. The market itself will not do that.
- holding down the cost of investing is extremely important - compare the cost of the etrade fund to comparable funds at fidelity and vanguard. pick the cheapest and, if necessary, roll your account over.
- make your regular contribution to the fund automatic so you don't have to remember to do it or make yourself do it
- when you get a raise or better job, up your contributions
- besides contributions, just leave it alone
- NEVER withdraw or take a loan from retirement accounts
- never tell people in real life your details, though of course do encourage them to get on top of their savings

Meanwhile read up gradually to build knowledge. I recommend bogleheads, get rich slowly, Eric Tyson's 'for dummies' books, Richard Bach, Where are the Customer's Yachts, Richest Man in Babylon, and at the least, the economic sections of Extraordinary Popular Delusions and the Madness of Crowds, because human nature has not changed.

That's all I've got. Nothing fancy, but solid building blocks.

[Anonymous]

Thanks for those really helpful responses, 13:10 and 13:11! It's only a few hundred dollars but I am happy I have something going. I am 22 (23 later this year) and plan on putting off retirement until 67 at least. This would have me retiring in 2060 or 2061.

It looks like a mutual fund is the way to go, especially since what is in my brokerage account are individual stocks (Disney, Tesla, and Boeing).

However, here's my caveat. I want to avoid investing in any oil & gas, fast food, and industrial agriculture companies because morally, I do not agree with or want to monetarily support them. I've figured out how to tell what companies the funds hold and what percentages the fund is of those companies, and I want to avoid Exxon, Chevron, Monsanto, McDonalds, etc. but it looks like many of the basic index funds have some combination of these. Does anyone have recommendations for more environmentally friendly funds? I want to support clean, renewable energy and sustainable agriculture but still get a decent ROI.

[Anonymous]

13:10 here

Ahh, I remember being young and idealistic. I agree with your sentiments. Unfortunately, when I tried to put it into practice, it gets really hard. By trying to eliminate one area (say oil and gas), invariably it led to funds that included something else (tobacco, guns, casinos etc.). Pretty soon the only way to go was with individual stocks. Even those end up being complicated (consider for example the impact of Boeing on carbon utilization). In the end, I think you are best off just buying an index, and making your social statements through other means (charitable giving, not buying products from certain companies etc.). Plus, this strategy has it's own social benefit-- it refuses to support the giant financial services industry that would like for you to buy actively managed funds or trade individual stocks.