Another Investment Question- 22 YO

[BTGuard]

Ok, I have some questions about how to get started in this whole investment thing. I'll start with my background.

I graduated college in May od 17. I'm getting married in April of this year, and she is currently still in school. She will graduate In May of 19 with a Bachelors in Nursing. I'm a contracted sales territory manager, so commission only and technically self-employed. I'm currently trying to decide how to start the saving process. Currently, I just have a work checking account, a personal account, and a few hundred dollars in stocks (more playing then investing).

My current plan is as follows: Switch to the local credit union. This will be in preperation of buying a house in the next 2 ish years. Open a savings account through Capital One, which is where my work checking is. This account will get 1/3 of my income and will pay my taxes. Since I'm self-employed I'm responsible for all of that.

I would also like to open a Roth-IRA, but quite frankly even after all of my googling I have no idea how these things work. It appears that if I open one at Capital One, I get 1% interest. Is that all there is to it? Do you need to select some sort of investment plan? It seems like a lot of people talk about putting there IRA into a mutual fund. How in the world does that work... Everything I've read has said that I really won't have enough money in the balance for a professional to want to get involved. Since I'm commission only I will be figuring on percentages rather than dollar amounts since I really don't know what I will make month to month... Obviously, everything here assumes I make enough to live!!!!

[Graysonhogs]

In

[JustinJ]

Check out a company like Wealthfront. You answer some questions regarding age/risk tolerance/etc and they'll get you set up with a Roth IRA and choose the funds for it.

I have it set up with direct deposit twice a month to reach the $5500 maximum per year. They will automatically invest and sell to maintain the correct allocation.

It's a very hands off approach with low fees.

I know there are a few companies that have this setup. Betterment is another one.

[thegrouse]

You need to do some research before you invest. A Roth IRA allows you to contribute 5500 a year. This is after tax money that will grow tax free but you cannot withdraw the earnings until 59.5 or other certain circumstances. If you are self employed you may have other options available to you. Within the Roth-IRA there are many investment vehicles you can choose from. There are many options but the most common ones are a mix between stocks and bonds. You choose these investment vehicles when you open the account. They have "target" date funds that are simple. You choose the date you want to retire and the funds rebalance the mix of stocks and bonds. These could work for you. There is also a traditional IRA that could be better for your situation. This is an investment of pretax dollars that will be taxed once you withdraw. There are several companies that are reputable that will answer all of your questions with a phone call. Vanguard, Fidelity and T Rowe Price come to mind. Please do your due diligence and know what you are investing in and have a strategy. It can be as simple or complicated as you make it.

Bottom line:
Make a budget. Live on less than you make and invest the difference. Good luck.

[deerplanter]

Fidelity investments and invest in their mutual funds. I can't remember the names but they are life something and then the year you plan on retiring. Depending on where you are in life is how aggressive they invest.

[bbqfan5909]

I’d recolmmend paying off student loans, CC’s, vehicles first. The amount of interest on those won’t ofset gains in invests.

[BTGuard]

You need to do some research before you invest. A Roth IRA allows you to contribute 5500 a year. This is after tax money that will grow tax free but you cannot withdraw the earnings until 59.5 or other certain circumstances. If you are self employed you may have other options available to you. Within the Roth-IRA there are many investment vehicles you can choose from. There are many options but the most common ones are a mix between stocks and bonds. You choose these investment vehicles when you open the account. They have "target" date funds that are simple. You choose the date you want to retire and the funds rebalance the mix of stocks and bonds. These could work for you. There is also a traditional IRA that could be better for your situation. This is an investment of pretax dollars that will be taxed once you withdraw. There are several companies that are reputable that will answer all of your questions with a phone call. Vanguard, Fidelity and T Rowe Price come to mind. Please do your due diligence and know what you are investing in and have a strategy. It can be as simple or complicated as you make it.

Bottom line:
Make a budget. Live on less than you make and invest the difference. Good luck.

Thanks for the info. So when I look at the 1% on the Capital One ROTH IRA what are they referring to? If I select the investments within the IRA wouldn't the amount I earn be variable each year?

[BTGuard]

Check out a company like Wealthfront. You answer some questions regarding age/risk tolerance/etc and they'll get you set up with a Roth IRA and choose the funds for it.

I have it set up with direct deposit twice a month to reach the $5500 maximum per year. They will automatically invest and sell to maintain the correct allocation.

It's a very hands off approach with low fees.

I know there are a few companies that have this setup. Betterment is another one.

Thanks, I'll have to check into those.

I’d recommend paying off student loans, CC’s, vehicles first. The amount of interest on those won’t offset gains in invests.

Good point. I have no CC debt (essentially use them as a debit card to get rewards and build credit). Student loans and my car are getting paid off rather aggressively. If this year goes the way I'm hoping we will be essentially debt free by mid-2019. I'm just hoping to get something set up before then.

[bbqfan5909]

That’s great my friend! took my wife and I ten years to get debt free and live where we wanted. Just wait until kids, throws a nice monkey wrench into those financial plans!

[thegrouse]

Thanks for the info. So when I look at the 1% on the Capital One ROTH IRA what are they referring to? If I select the investments within the IRA wouldn't the amount I earn be variable each year?

It depends. It could be a 1% fee to handle your investments or possibly a money market fund within the Roth. I know some folks that are so afraid of risk they put there money in low return investments like that. All mutual funds charge a fee. They vary from .5-1% or so. Then some companies will charge a "management" fee on top of that. If you use one of the bigger brokers, Fidelity; Vanguard etc you will just pay the fund fee normally. There are always exceptions.
"If I select the investments within the RIA wouldn't the amount I earn be variable each year?"
Yes most likely. Unless you chose something like a money market fund which probably returns 1% and doesn't keep up with inflation your "return" will vary. Some years will be better than others. High risk/ High reward is what you will hear. The investments that have potential for big gains can always have big losses. Safer investments probably will not ever have the big gains but may avoid the big losses. You will need to find a mix of investments that fits your risk tolerance.

[KSU_Wildcat]

Good for you. The key to building wealth is to begin investing early and make it part of your budget. As for your questions, an IRA is simply a tax-advantage shelter for your investments. You will be able to elect how you want your funds invested (e.g., individual stocks, mutual funds, bonds, precious metals, etc). It may also be possible to invest in real estate but you will have to talk to Capital One about how to do it. Generally, I think a Roth IRA is a better option than the Traditional IRA for younger investors at lower tax brackets. The principal you invest in a Roth is taxable but grows tax-free. The principal in a Traditional IRA is not taxed so it has an advantage if you are trying to reduce your taxes immediately but all its growth is taxed upon withdrawal. Since that will be after retirement, the theory is that even though you will pay taxes on the growth the amount of money you need will not put you in a high tax bracket. IRAs are subject to contribution limits based on your income so be sure you look at that.

One other piece of advice I can give is to take a Financial Peace University course from Dave Ramsey. Have your fiance take it with you. It will help you learn to budget and save.

Good luck! By the way, I am not a professional investment expert but have done my research. For specific questions, you can contact Capital One and they can walk you through how to get everything set up.

[BTGuard]

That’s great my friend! took my wife and I ten years to get debt free and live where we wanted. Just wait until kids, throws a nice monkey wrench into those financial plans!

O I'm sure my biggest goal is to only owe on a house when we do have kids. Not saying that won't change but that's where I'm at now... My future wife graduating will be helpful, because she should have a pretty healthy, consistent salary right away.

Sent from my XT1585 using Tapatalk

[Balcones_Walker]

The IRA is the vehicle - the type of account you're setting up. As others have mentioned there are caps for how much you can put in that account.

You then buy funds using the money in that vehicle. It sounds like CapitalOne offers one (with very low yield).

You can't go wrong with Vanguard index funds. Their life strategy 2040 or total market index are good choices for funds to buy with the money you earmark for your IRA.

I'm not a financial advisor; don't try this at home...

[Kmart49]

I would recommend looking into Northwestern Mutual or a similar company. They can help you with everything from investments to retirement as well as life insurance.

[Throwin Darts]

I posted a thread about personal finance a while back that hits a bunch of your questions. Check it out if you're interested

http://discussions.texasbowhunter.com/forums/showthread.php?t=515163

I'd suggest opening your Roth IRA at Vanguard or Fidelity and investing it in a low cost index fund. At Vanguard you could look at the Total Stock Market Index or you could keep it super simple and simply and buy a target retirement fund with the target date closest to your retirement date. You open the account online, link it to your checking account and transfer money, and then buy the investment that you want. Captial One will have higher fees than both Vanguard and Fidelity and most likely less investment choices. Be wary of advisors that will come along and say they can beat the indexes after fund fees, their fees, and taxes because time and again its been proven that they can't over the long term.