Different investment options.
Sunday, August 17th, 2008As a follow-up to my previous entry here’s where it gets interesting. I’ve done the research for you. so here’s a list of investment options from (my opinion) best to worst.
Bust first here’s a quick dumbed down vocabulary to decipher some terms:
- Stock: A single unit of ownership of a single company.
- Mutual Fund: A collection of stocks fro different companies.
- Bond:You loan a corporation or government money and they repay you with interest at the end of the predetermined term.
- CD:You loan the bank money so that they can make money and give you some of the profit at the end of the predetermined term.
Now that you have that highly detailed explanation, lets get to it:
ROTH IRA (Individual Retirement Account): Paid into with your post tax dollars. As of 2008 you can contribute up to $5000/year. It’s an individual account that has nothing to do with an employer. You can withdraw your contributions at any time tax and penalty free. At the age of 59.5 you can withdraw contributions & earnings tax & penalty free. Before hand and you have to pay the taxes and 10% penalty on the earnings only. At the age of 70, you have to start receiving monthly distributions from the account or roll it over into something else altogether.
ROTH 401K: Paid into with you post tax dollars. As of 2008 you can contribute up to $15,500/year. It has to be offered by your company as they’ll match a percentage of your contirbution (sometmes 100%). You cannot withdraw your money without penalty (sort of). you have to take a proportionate amount of earnings with the amount of contributions you are withdrawing. So if you take 50% of your contribution out, you have to also take 50% of your earnings. The earnings are then included in your income for federal tax purposes. At the age of 59.5 you can withdraw contributions & earnings tax & penalty free. Before hand and you have to pay the taxes and 10% penalty on the earnings only. At the age of 70, you have to start receiving monthly distributions from the account or roll it over into something else altogether.
401K:Paid into with pre-taxed dollars (meaning you’ll have to pay taxes later when you withdraw). This setup through your employer and they have the option to match a percentage of your contributions (some dollar for dollar). At the age of 59.5 you can withdraw contributions & earnings tax & penalty free. Before hand and you have to pay the taxes and 10% penalty on the earnings only.
403b: Strikingly similar to a 401k plan in every way. The biggest differences are investment options which are limited to:
Mutual Funds:Paid pre or post tax depending on the account. You can purchase mutual funds by selecting them within you ROTH, 401, 403 or individual accounts. They’re the 2nd choice of investing for individuals. They’re not as volatile as individual stocks. When researching which MF’s are best for you, choose the 4 best percentage gainers over a 10-15 year period and allocate 25% in each.
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nnuity and variable annuity contracts with insurance companies.
- Retirement income accounts for churches.
- A custodial account made up of mutual funds. This is known as a 403(b)(7).
CD’s (Certificate of Deposits):Safest of all investment options as there’s a contract that you’ll get a preset return at the end of a contract. The drawback is that the interest rates are usually low and is almost the same as the increase of the yearly cost of living increase. Usually, the longer the CD is held, the higher the interest rate. If you cash in the CD before the specified time, you will have to pay a penalty. CDs are also insured (up to $100,000) if the institution is federally insured.
Savings Bonds: Usually yields lower interest rates than a CD and also come without a garuantee (unless it’s government issued). Not really an option in the investment cycle (for me at this point) so I really didn’t feel like doing my full research on it. If you want to know more, read here.
Stocks: Can be good or bad depending on your research. RESEARCH RESEARCH RESEARCH. There’s a reason you hear about day traders going postal. I’d suggest going the mutual funds option instead of the stocks route.
Note: All of these options (except for most CD’s) have risks involved. I’m a 31 year old male that can afford to take the risks at this time. Even though this is an informative blog entry that may persuade your opinion to invest one way or another, I’d advise you to seek the help of a professional. Of course, I’m always willing to give advice so if there’s something you need explained in further detail, don’t hesitate to ask.
