Christian Financial Forums

[Caroline123]

I am a college student. Unfortunately, I have never been taught very much about saving for retirement
I have a few questions.
1.) Is a ROTH IRA the best option to start out with?
2.) What is the minim amount that you have to invest to start out?
3.) Where are the best rates?
4.) What is the safest option?
5.) What's your recommendation?

[garyatk]

I would spend some time learning about investing and IRA's by picking up a good book first. My favorite is Sound Mind Investing Handbook by Austin Pryor. This book will teach you everything you need to know about personal finance from a Christian perspective.

Personally, I would invest in a Roth IRA as opposed to a traditional IRA. I would invest only after I had an emergency fund of 3 to 6 months living expenses in a safe liquid place like a money market mutual fund. If you don't know what to invest in, I would consider a lifestyle type investment. They invest in a age appropriate asset mix of stocks and bonds usually in Index funds.

I personally have all my investment assets at Vanguard. We have a 6 month emergency fund in the Money Market Prime mutual fund. We also have a car fund in Prime too. My wife and I both have Roth and some old traditional IRA's at Vanguard and they are invested in the Target Retirement 2035 mutual fund. My 401K at work is also in the same fund.

Vanguard has the lowest fee's and best customer service. However, you need $3000 to open an account. But if you have an emergency fund, I'm sure you have that much. Then over and above that, open a Roth IRA. Most of all READ, READ, READ!!!!!!!!!!!!

If you like the group learning experience, take a Dave Ramsey Financial Peace University class, or if you are a Christian and like Bible Studies, take a Crown Financial Ministries small group. Both are GREAT, and I have lead them both!

GOOD LUCK!

[pochax]

I am a college student. Unfortunately, I have never been taught very much about saving for retirement

That is okay...we all have to start somewhere...you get to start in college...i started in my 30s!!!!

1.) Is a ROTH IRA the best option to start out with?

Typically, once you have saved your emergency fund, it is a good idea to think about starting to save for retirement. but everyone's situation is different. since you are in college, i am going to assume you are single with no dependents and probably earning income from a parttime job. to start a ROTH, you need earned income. you can only contribute to the max of your earned income or $5000 per year. the advantage of the ROTH is that although contributions are taxable at your current marginal income tax rate, your earnings are TAX-FREE (assuming you met the restrictions). this is opposed to a deductible traditional IRA where you get a tax deduction for the contribution, but all gains in the account will be taxed when you take it out during retirement (ie. TAX DEFERRED). many experts advocate having some $ in both types of accounts as a way of hedging because no one really knows if tax rates will be lower or higher in the future (although some people feel the probability is that they will be higher due to our exponentially increasing national debt).

2.) What is the minim amount that you have to invest to start out?

as mentioned before, it depends where you start the account. the actual federal guidelines do not give a minimum. the maximum however is $5000/year with an extra $1000/year if you are 50 yrs or older (so called "catch up" contributions). these maximums are the maximum contributions allowed in ALL your IRA accounts (ROTH and traditional combined). i also would recommend Vanguard as well as T Rowe Price with Fidelity being lower on my list. brokerage accounts (TD Ameritrade, CHarles Schwab, etc.) also offer these, but contributions may be associated with commission fees for each transaction which can add up (but you get more choices of investments). if you do not have the $3000 minimum for Vanguard, T ROwe Price offers a $50 minimum but you have to promise to add $50/month to do it.

3.) Where are the best rates?

Not sure if you mean rates of "interest" or rates meaning what your expense ratios in the investments chosen. Rates of "interest" are terms limited to more safe/conservative investments like savings accts, CDs, and money market accounts currently yields on these types of investments are very low. it is not likely they can consistently beat inflation rates. expense ratios (ERs) are a fixed expense that will be taken from your assets in a mutual fund as part of the administrative expenses associated with running the fund and managing the investments. typically ERs that are over 1% are seen as a bit expensive (Vanguard traditionally has the lowest ERs in the business).

4.) What is the safest option?

"safest" also means "least riskiest" or "least volatile" which also can mean "least expected gain". If you are investing for the longterm (>10-20 year timeframe, eg. retirement), you will want to outpace inflation over that time period. usually conservative investments such as money markets, CDs, bonds won't give you a great shot at doing that. you will need at least some exposure to equities (stock market) in order to realistically beat inflation in the longterm, but that entails some risk (as seen in the last few months/years). how much exposure depends on your stomach for risk, your need for risk, and your future goals.

5.) What's your recommendation?

My recommendation goes with the disclaimer that i don't know you and you don't know me so you have to take what i say with a grain of salt. IF you are single, in college, have an emergency fund of 3-6 months of living expenses, in a relatively low income tax bracket now, and getting part-time income, i would suggest contributing to a ROTH IRA at any of the big three mutual fund companies (Vanguard, T Rowe Price, or Fidelity). you can get some free investing advice over the phone or in person with many of these companies when you start. a balanced stock/bond portfolio whose allocation is dependent on your stomach for risk, need for risk, and financial goals is a good place to start. you can always transfer your assets into a ROTH account somewhere else if you feel your $ is best managed somewhere else, but i think you probably will be happy at one of the big three. Finally, i would read read read....i learn a lot from another financial forum as well (bogleheads.org) and they have a reading list of some great books to read when you are starting out.
God bless and have fun learning about this stuff....i know i did!