What to do with money

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Discus: Parents Forum: 2004 Archive - Part 2: What to do with money
By Idiias (Idiias) on Wednesday, July 21, 2004 - 03:38 pm: Edit

I'm a summer intern at this engineering computer company, making really good money, but I don't know where I should put it.

My mom says put it in my roth IRA which has like $200, and she keeps saying, "put in money each year and you'll have a million dollars by the time you're 50!" yeah yeah.

I have stocks that my dad does, but I don't really know how it works, or when it's going to be turned over to me.

i don't just want to put it in my bank account, cause the interest isn't even interest, and it makes it easy to spend.

I think it'd be cool to buy land, as property is BOOMING in nevada, but I don't have quite enough money for that.lol

I'm starting college this year and want to know what to do with it, so that it invests safely, yet aggressively. Thanks.

By Sokkermom (Sokkermom) on Wednesday, July 21, 2004 - 03:43 pm: Edit

How about chipping in to help pay for your college? That's a pretty good investment!

By Bern700 (Bern700) on Wednesday, July 21, 2004 - 03:52 pm: Edit


I'm currently an intern for UBS PaineWebber. We handle this kind of stuff on a daily basis. You could open a roth IRA which is not a bad idea however with IRAs you can't touch that money until you retire so I'd suggest putting it into a personal account. If you were to open an account at a financial services company like UBS, Merril Lynch, etc. you could also let your broker handle the stocks as part of your personal account. The broker would be able to create a nicely diversified portfolio with an annual return of about 10-15%. This way you can let your money grow for a few years (however long you want) and pull it out when you need it down the line say for the down payment on a house, car, etc. The roth IRA is a good idea as well just note that you can't touch that money until you retire.

By Alongfortheride (Alongfortheride) on Wednesday, July 21, 2004 - 04:20 pm: Edit

I'm with Sokkermom!

By Elizabeth22 (Elizabeth22) on Wednesday, July 21, 2004 - 04:41 pm: Edit

Maybe he was lucky enough to get a full ride somewhere, so there's no college bill to pay...you never know...

By Geniusash (Geniusash) on Wednesday, July 21, 2004 - 04:43 pm: Edit

Why don't you buy me some really expensive presents? I take checks too...

By Idiias (Idiias) on Wednesday, July 21, 2004 - 05:08 pm: Edit

I think my parents would rather put in the investment in my education, that way I will be making alot of money when I'm older and be able to put them in the nicest retirement home in the U.S!

lol just kiding, but come on moms, I could be one of those kids wondering if I should get new shoes or a new watch with my money.

How about you ask hubby to teach you a little about financial investments tonight when he gets home eh?

By Demingy (Demingy) on Wednesday, July 21, 2004 - 05:12 pm: Edit

"How about you ask hubby to teach you a little about financial investments tonight when he gets home eh?"

I'm sure you meant that as a joke, but that was so not funny......

By Sokkermom (Sokkermom) on Wednesday, July 21, 2004 - 06:01 pm: Edit

Maybe Idiias lives in Stepford....and doesn't realize that there are some moms who earn too much money to qualify for aid, even w/out hubby's salary or investing savvy. And their kids who work in the summer are required to contribute most of their earnings to their own college fund, and additionally guarantee to fund their parents' retirement room - with a view.

By Bern700 (Bern700) on Wednesday, July 21, 2004 - 06:11 pm: Edit

Oh all the moms just got served !!!! :)

By Mom101 (Mom101) on Wednesday, July 21, 2004 - 06:12 pm: Edit

I'd ask my hubby only I'm not sure my little brain could absorb all that money talk...Take at least some and invest in the market for the experience.

By Geniusash (Geniusash) on Wednesday, July 21, 2004 - 06:42 pm: Edit

Uh oh idiias, prepare to suffer the wrath of every mom on this forum.


By Smhop (Smhop) on Wednesday, July 21, 2004 - 08:17 pm: Edit

I think we'd rather see you blow it all on a watch.


By Dmd77 (Dmd77) on Wednesday, July 21, 2004 - 08:48 pm: Edit

If you are an intern at a computer engineering company, I expect you are making around $8K or $9K for the summer (I know Microsoft pays $9K/summer).

Why not: $3K to the Roth (which is a good idea, and the maximum too) and then figure out what to do with the rest?

Congrats on the summer job.

By Demingy (Demingy) on Wednesday, July 21, 2004 - 08:50 pm: Edit

LOL to all you moms! ;-)

Yeah, if I had asked my ex-husband about investing he would say that the best idea would be to put money down on a really fast car or computer and resell it later--that was his idea of investing. So, I guess that is what Idiias should do. :)

By Idiias (Idiias) on Wednesday, July 21, 2004 - 11:32 pm: Edit

haha I put this on the Parents Forum for a reason. I wasn't expecting to get the best advice from somone my own age! Thanks Bern

By Middleofnowhere (Middleofnowhere) on Wednesday, July 21, 2004 - 11:49 pm: Edit

Bern is incorrect about the Roth IRA. Money in a Roth can be withdrawn before retirement...different than a traditional IRA.

By Bern700 (Bern700) on Thursday, July 22, 2004 - 02:04 am: Edit

yes but from my understanding there are huge penalties

By Idiias (Idiias) on Thursday, July 22, 2004 - 03:01 am: Edit

Sokkermom i got to thinking. I couldnt understand the concept of me spending 40 hours a week my whole summer and turn around and give the money to my parents for college, which would account for maybe 15-20% of my first year alone!

So I talked to my mom while she was making dinner (she just got home from her JOB) and I asked her why she never expected me to chip in my summer earings. She went on to say how she thinks it's important for me to learn Time IS money, how to invest, and that since I got some scholarship money on my own, she was already satisfied. She said if I was going to spend it on cds, etc. it'd be a different story. She actually realized she was so impressed with me wanting to invest money, she agreed to MATCH whatever I make this summer!! that's huge! and I have you to thank for getting me thinking on this issue. If you're ever in Nevada, you have a place to stay. Well not really, but thank you.

By Haithman (Haithman) on Thursday, July 22, 2004 - 03:07 am: Edit

Nice Idiias.
BTW I might be in NV next month...address please?

By Trackstar (Trackstar) on Thursday, July 22, 2004 - 06:35 am: Edit

RE: IRAs. Penalty free withdrawals for down payment on a first home ($10,000) limit, penalty free for financing post secondary education, penalty free for medical expenses over a certain amount amoung a few other exceptions. Roths are just a bit different... the principal has to stay in for 5 years but the interest and/or growth is available for withdrawal.

That being said... my mom works with investments and my dad says the only stock he'd buy is livestock! (he's a farmer, his business is a gamble every day)

By Sokkermom (Sokkermom) on Thursday, July 22, 2004 - 07:47 am: Edit


My son wants you to ask your Mom if she would be interested in adopting another kid for the next few years. He's really really cute and smart. Tell her that if we can negotiate a deal, the hubbies will never even have to know about it!

By Middleofnowhere (Middleofnowhere) on Thursday, July 22, 2004 - 11:14 am: Edit

ROTH IRA: You're allowed to withdraw your non-rollover contributions at any time without paying tax or penalty. This is not the case for the earnings, however. Generally, a withdrawal of earnings will be taxable and may be subject to a penalty as well.

By Geniusash (Geniusash) on Thursday, July 22, 2004 - 05:09 pm: Edit

I'm very surprised you did not get flamed for the first sentence of your second paragraph...you should have been. Therefore, I hereby flame you.



By Kluge (Kluge) on Thursday, July 22, 2004 - 05:10 pm: Edit

Idiias: How about this: You put the $$ in an IRA. You wait longer than you think any person should live, until you are ridiculously old and useless.

Then you withdraw the money to pay for your kids' college expenses!

By Backhandgrip (Backhandgrip) on Thursday, July 22, 2004 - 05:32 pm: Edit

I like ALL these suggetions! Especially the watch! What a crowd!
There is a limit to how much you can annually contribute to an IRA, Roth or otherwise.I think you should go with what your parents suggest and not take advice from this board!Keep it in the family.

By Concerneddad (Concerneddad) on Thursday, July 22, 2004 - 07:41 pm: Edit

Or take the money and run, go bananas, and move to San Carlos and live like a King.

By Carolyn (Carolyn) on Thursday, July 22, 2004 - 09:32 pm: Edit

The first rule of thumb is to set aside enough money for emergencies in some sort of easily accessible savings instrument. It's great that your parents are able to afford to pay for college but things happen. Open a money market account and set aside at least a semester's spending money before you invest in less fluid vehicles. Better yet, try for a semester's worth of tuition. Then you will have a safety net in case your investments go south.

By Idiias (Idiias) on Friday, July 23, 2004 - 08:01 pm: Edit

maybe I'll start a thread: "Puma or Fossil"

(Parents: They're watch brands )

no, but seriously, how long does it take for you to withdraw money from an IRA? And what's the difference between a traditional IRA and a roth IRA?

By Backhandgrip (Backhandgrip) on Friday, July 23, 2004 - 08:21 pm: Edit

A traditional IRA has tax advantages immediately but is taxed when it is withdrawn, to take out a Roth IRA you must make under $149,000 annually (or close to that) and there is no immediate tax advantage but when the IRA is withdrawn it is not taxed! I would consider the Roth, but this is something you should discuss with your family and bank.You can withdraw your IRA anytime but there are stiff penalties on interest acrued if withdrawn before it has matured and sometimes some general bank penalties. The point of an IRA is to withdraw it at 59 1/2 yrs or later! It's for your old age!Believe me at 59 1/2 you will be glad you have it there.
Or you could do a money market or CD . All interest accounts pay stinky rates right now.If the rates were better, then the stock market would be hotter and everyone whould be earning a bundle there- so you would do best to inform yourself about all manners of saving and investing.If you are making good money this summer now is the time to learn!You will be glad you did!

By Backhandgrip (Backhandgrip) on Friday, July 23, 2004 - 08:28 pm: Edit

By the way, what part of the country is your engineering firm in? Let me guess, - Florida, Mass. or Cal.? Also, do you like the work and is it challenging?Was it hard to find the summer job? -My son wants to take computer science or engineering in college and is still looking at schools. Do you think Tech schools are best for this major or are large general programs like Penn State or Indiana good also? Just wondering what you think?

By Idiias (Idiias) on Saturday, July 24, 2004 - 04:47 pm: Edit

Actually it's in Nevada, but a very big company. There work is pretty long and tedious. There's alot of CS college students trying to get internships there, but I kind of knew someone, even though I just graduated from high school. lol. I don't like computers much. I want to be a business major and then get my law degree and/or MBA. It just worked out as a well paying job and would keep my busy this summer though. So honestly, I'm not sure about schools.

By Idiias (Idiias) on Sunday, July 25, 2004 - 09:22 pm: Edit

What are mutual funds?
What does Charles Schwab do exactly?

By Massdad (Massdad) on Sunday, July 25, 2004 - 10:04 pm: Edit


First rule of investing: There is no such thing as a free lunch. Anyone who says, like a poster did above " The broker would be able to create a nicely diversified portfolio with an annual return of about 10-15%." is only after fee income.

You really need to get a good book on investing or you are only going to see your portfolio shrink, Roth IRA or not.

If you do not know what a mutual fund is, you are not ready to invest in stocks, real estate or mutual funds. You are certainly not ready for Charles Schwab.

Before you make ANY investment beyond a savings account, ask yourself a simple question: "What do I know that the professionals do not?" If you do not have an answer to that, watch out. Remember that every sector of finance, stocks, bonds, real estate, commodities etc., has professionals that tend one small area making money at the expense of those who know less, like most of us on these boards. This is a game where us amateurs find it easy to lose, hard to win against the pros. (and that's why mutual funds exist - we amateurs pool our money and hire a professional to invest it).

Idiias, PLEASE, for your own sake, DO HOMEWORK before you invest outside safe investments. Investing in a Roth IRA, a non tax sheltered account etc. is far LESS important than picking investments and picking financial firms that will not take you to the cleaners. Now is a great time to do it right and avoid expensive lessons.

Let me know if you want a few book recommendations. I'm sure others here have their favorites, too.

BTW, If I were you, and had a few thousand to start, I'd open an IRA through Vanguard. Less than a few thousand and you are better off with a savings account or CD. The account maintenance fees in an IRA will kill you otherwise.

By Backhandgrip (Backhandgrip) on Monday, July 26, 2004 - 10:55 am: Edit

Massdad is really right. Congrats on the job, sounds like there may be future there for you, you lucky dog!IF not great exprience anyway.

By Bern700 (Bern700) on Monday, July 26, 2004 - 12:33 pm: Edit

Yeah go with vanguard to open your IRA. They have really low fees, etc.

By Idiias (Idiias) on Tuesday, July 27, 2004 - 10:58 am: Edit

That's funny because I have 8 lunches punched on my card at the employee cafeteria. The 11th is free so I should be getting a free lunch sometime this week! But I always think of your saying whenever I get my card punched.

And I already have a roth IRA with Charles Schwab which has about $200 in it. Is Vangaurd the same thing as Charles Schwab?

Yes, please give me book recommendations, I'll read it when I'm at the beach.

And I still don't know what mutual funds are.

By Massdad (Massdad) on Tuesday, July 27, 2004 - 12:56 pm: Edit

Schwab is a brokerage firm. Brokerage firms buy and sell financial instruments (stocks, bonds, mutual funds etc.) for individuals like you, for a fee.

Vanguard is a mutual fund company known for low expense ratios. You will learn about expense ratios from any good finance book.

Some possibilities:

Making The Most Of Your Money, by Jane Bryant Quinn

The Only Investment Guide You'll Ever Need By Andrew Tobias

The classic regarding wall street:

A Random Walk Down Wall Street Including A Life-Cycle Guide To Personal Investing By Burton G. Malkiel

There are many others.

Just remember that, in the world of finance, many people you could deal with (brokers) will make money even when you lose money. buyer beware.

By Idiias (Idiias) on Thursday, July 29, 2004 - 04:08 pm: Edit

I went to Charles Schwab during my lunch break. And they assign specialists to certain people based on the letter of your last name....just like counselors in high school. lol

My specialist was out to lunch so I met with this lady and I asked her if she was an investment banker and she told me she was a broker. I wanted to ask what the difference was, but she seemed rushed.

I can put in up to $3000 a year in my roth IRA and can only take it out if I'm getting my first house, I'm 59 and a half, or there is a death. It sounded good to me, so the next thing is to give them my paychecks but I want to put them with mutual funds IN my IRA(cause right now they are in nothing). Is there anything I should know from your perspective before I meet with my specialist? I want to do an aggressive one.

By Massdad (Massdad) on Thursday, July 29, 2004 - 09:32 pm: Edit


We've given you some advice, but you seem to already know what you want to do, so there is no advice I can give you. I'm sure you would not listen anyway.

So, go. Have fun. Take a flyer in some speculative investments. It sounds like that's what you want to do. But why not just buy lottery tickets instead?

By Dmd77 (Dmd77) on Thursday, July 29, 2004 - 11:07 pm: Edit

A broker is someone who manages buying and selling and takes a cut in both directions. An advisor tells you what to invest in. In the past, the line has been blurred, and advisors have also been brokers, advising clients to buy whatever paid the highest commission. These days, most investment firms are trying to charge for advice separately from commissions.

You can open a Schwab account and do your own research for your Roth investments. They will not charge you for their on-line research information, but will charge you for investment advice.

My kids both opened Roths last year and chose to put their money into SPY--an exchange-traded fund (ETF) for the S&P 500 (look it up). My Roth is in SPY and Bank of America stock (I like the dividends). Next year's $3000 may go into a different stock, but with only $3K to put in, I don't want to buy a lot of different stocks and pay dividends on all of them.

The problem with active trading in your Roth account is that you'll lose a portion of it both buying and selling (broker's commissions).

Mutual funds typically charge about a 1-to-2 % commission. Vanguard is a mutual fund company that charges very low fees and thus makes investors more money than those who charge higher fees. You can buy Vanguard mutual funds through your Schwab account--but you can also buy stocks and other company's mutual funds.

By Idiias (Idiias) on Thursday, July 29, 2004 - 11:12 pm: Edit

NOOOO. I was going to get one of those books, but the lady explained everything so easily to me. And when I went there, I thought in the back of my mind what you said. That they are making money off your investment; that's why their office was so nice.

I already have an IRA with Charles Schwab with several hundred dollars, that's why I haven't looked into Vanguard and went to them.

By Idiias (Idiias) on Thursday, July 29, 2004 - 11:15 pm: Edit

Okay I'm going to look into vangaurd and S&P before I do anything with Charles Schwab. Thanks for your advice thus far.

By Bern700 (Bern700) on Thursday, July 29, 2004 - 11:25 pm: Edit

If you want an aggressive portfolio you'll have to have something that looks like this:

Cash 0-2%
US Fixed Income 0-12%
Intl Fixed Income 0-3%
US Equity (Large Cap) 40-52%
US Equity (Sm/Mid Cap) 19%
Intl Equity 16.5-20%
Emerging Markets 5.5-6.7%

There are various fund that have C shares, which are no load funds. You can possibly go with these, however, if you have an account with Schwab they probably have a system, similar to UBS's PACE, in which you can buy other share classes without paying a front load b/c of agreements tha Schwab has with the fund company. Many times if you do this the minimum investment in a fund is also smaller.

If I might recommend some funds. For intl equity go with American Funds Euro/Pacific Class A or even better First Eagle Global Class A. Also you can go with some moderate allocation funds, such as American Funds Balanced Fund Cl A or Dodge & Cox Balanced, coupled with some more aggressive investment in sm/mid cap equity.

By Massdad (Massdad) on Thursday, July 29, 2004 - 11:47 pm: Edit

" I was going to get one of those books, but the lady explained everything so easily to me"

That's why she is a good SALES person. Don't be misled. The story will always sound good.

Now, a short lesson:

Bern700 recommended the First Eagle Global Class A fund. Class A shares have a 5% load, meaning 5% of your investment, off the top, goes to the broker and brokerage house. On top of that, you will pay 1.32% of your investment annually for expenses. This includes 0.25% for what is called a 12(b)1 fee, essentially a marketing fee. Why current share holders should pay a marketing fee (as opposed to the fund manager) is beyond me, but that's the way these things are set up.

So, if you followed this recommendation, compared to someone who bought a no load low expense fund, you'd start off 5% in the hole, and get even further behind by about 1% per year. That is unless funds like this managed to get a higher annual return than low cost funds. Unfortunately, NO finance research has shown this to be the case, although many have looked, especially the expensive funds who would like to justify some sort of value.

So, why would anyone buy these funds? I have no idea, but I suspect it is due to "the lady explained everything so easily to me." - good sales people.

And this is why it is hard to WIN in this game. Winning is not making money. Winning is making more money with less risk.

By Bern700 (Bern700) on Thursday, July 29, 2004 - 11:59 pm: Edit

Massdad: Many times brokerage firms have agreements with the mutual fund company. For example at UBS we have the PACE system that includes about 2000 funds to choose from. If you buy from these the front load is eliminated, there are no 12(b)1 fees. The only thing left would be the 1.32% annual expense. However, where these brokerage firms get you is with the cut they take of about 2% from your annual earnings. There are also maintnance fees that the brokerage firm may charge. In these cases buying those kinds of funds - which usually vastly outperform the c class shares - can be a good investment. Every single one of the 900 accounts that we have in my wealth mngt. group has had 3yr annualized returns of 4-42%, which is pretty decent for a bear market.

Personally, I have a vanguard roth IRA. I buy some of their funds, although vanguard funds in general are pretty terrible with the exception of a few. I usually buy C class shares, which are a better investment as massdad said. There are some companies that don't charge 12(b)1 fees and the have no load. Dodge & Cox, which has outstading funds, is like this. All you pay is the expense ratios which are manageable.

But I agree with massdad on his analysis. If Schwab doesn't have a similar system to UBS I'd just stay with C class shares, some F class shares that don't have loads, and funds like those of dodge & cox. Good Luck!

Thanks for pointing that out massdad. I kind of ommitted how terrible of an investment those funds are if you don't have a UBS- like brokerage system available (end plug ,jk).

Massdad, btw, have you looked at any of the dodge & cox funds lately...they are pretty sweet. The only thing is that the stock fund is now closed to new investors. However, it grandfathered so I can still buy more since I had already invested.

By Massdad (Massdad) on Friday, July 30, 2004 - 01:01 am: Edit


That 1.32% annual expense includes a 12b1 fee. Check the prospectus.

One other area to watch out for is trading expenses. Sometimes they can be hidden - not included in the expense ratio.

Here's a good link discussing some of this:


BTW, Bern, that 2% management fee can sure kill the rate of return.

By Idiias (Idiias) on Friday, July 30, 2004 - 02:52 am: Edit

When you say C class i can only think of a Benz. lol so I wrote down the list of books and am going to get one tomorrow, so I know what I'm doing.

By Kingkonglives (Kingkonglives) on Friday, July 30, 2004 - 03:30 am: Edit

hey can u guys recommend some more books?

and is this book good?

"The Wall Stree Journal Guide to Uunderstanding Money and Investing"
thanks i saw it on another thread... i plan on getting some books soon =) maybe i can find something at the local library "friends" store LOL

my mommy bought me an economics book and Iacoca autobiography (O.o i didn't know who he was) when she was there =)

By Dmd77 (Dmd77) on Friday, July 30, 2004 - 10:54 am: Edit

The WSJ guide is good.

While you're at the library, check out the book *The Intelligent Investor* by Benjamin Graham, which is the book Warren Buffet credits with his investing know-how.

You should also read Buffet's annual letters to stockholders of Berkshire Hathaway (his holding company). He's full of fascinating advice to investors. http://www.berkshirehathaway.com/letters/letters.html

By Massdad (Massdad) on Friday, July 30, 2004 - 11:40 am: Edit

Books? Start here:

A Random Walk Down Wall Street

It is a classic, and has good advice.

By Bern700 (Bern700) on Friday, July 30, 2004 - 03:09 pm: Edit

"BTW, Bern, that 2% management fee can sure kill the rate of return."


That's how brokers make their money. At UBS on the PACE accounts we take 1.5% and on ACCESS accounts we take 2.25% of the return. That's huge! If all of your accounts total 50Mil you'll be making a cool 200k and from what I've noticed the amount of work brokers do is nothing!!! The brokers work 9-5 usually and fridays they may leave at 12-1. It's really very little work with low pressure and you make a decent amount of money.

A lot of the guys here were former ibankers, they stopped ibanking, did something else for a while (VC, etc.) and then retired from that at 40-45. Now these guys have a ton of money and work 35-40 hours a week and still make a nice living. Many of them actually don't even have to work but they get bored staying at home.

Massdad: A random walk down wall st. is a pretty good book. That was a good recommendation. Have you checked out those sweet dodge & cox funds?

By Idiias (Idiias) on Friday, July 30, 2004 - 04:06 pm: Edit

I just went to Barnes & Nobles during my lunch break and got it. It was tempting to get one of the more eye catching books like "automatic millionaire" or the one where the author wrote, "how I turned $33,000 in into $7 million in 15 months"

but i hope this one helps me...But is this book going to be easy to understand?

By Massdad (Massdad) on Friday, July 30, 2004 - 05:06 pm: Edit

Bern700, not yet - gotta tend my day job first!

Idiias, all of the book recs are for easy to understand books - not like what I had to wade through in B-school. Titles like "Portfolio Theory" with a lot of calculus and terms like "pareto optimality". No, you don't need that level!

By Idiias (Idiias) on Sunday, August 01, 2004 - 02:57 pm: Edit

I've read about the first 40 pages. It is really good and I like the analogies.

Who's this?

"October. This is one of the peculiarly dangerous months to speculate in stocks in. The others are July, January, September, April, November, May, March, June, December, August, and February."

By Geniusash (Geniusash) on Sunday, August 01, 2004 - 04:26 pm: Edit


By Idiias (Idiias) on Sunday, August 01, 2004 - 06:16 pm: Edit

How did you know? You don't read these things!

By Dstark (Dstark) on Sunday, August 01, 2004 - 06:39 pm: Edit

Idiias, if you don't know what to do with the money, then you have to put it somewhere like a short term cd. Don't put your money into areas you don't understand. Low returns are better than negative returns. Bern700's advice, don't take it. Do not tie up your money at your age and get stuck paying huge fees. Fees will kill your return. Don't listen to stock brokers. They are just salesman. There is no rush to invest the money. The stock market hasn't gone anywhere for over 5 years. The returns in the bond market are low. Real estate is inflated and may be a ticking time bomb. If you have to invest, invest small and with your ideas. That will give you a good learning experience.

By Massdad (Massdad) on Sunday, August 01, 2004 - 07:58 pm: Edit

Just take the phrase and do a Google search. That's how I verified his claim.

By Geniusash (Geniusash) on Sunday, August 01, 2004 - 10:26 pm: Edit

I may not know money...but I do know Mark Twain

PS: You are still VERY sexist

By Mattman (Mattman) on Sunday, August 01, 2004 - 11:10 pm: Edit

go with a Roth IRA

By Massdad (Massdad) on Monday, August 02, 2004 - 11:02 am: Edit

With all due respect, a Roth IRA? For someone starting college? You gotta be kidding.

Tax advantaged retirement accounts are fine, after the basics are taken care of. And basics include having a readily accessible financial reserve, not money in a retirement account.

Yes, the $$ are "extra" now. Who knows what the case will be in two year. In five years. So no, in my book, first dollars to into a reserve account, second dollars into investment accounts that may include Roth IRAs. The IP indicated that getting money out of sight is a factor, so it does not get spent. But an IRA is a poor way to develop financial discipline.

By Dmd77 (Dmd77) on Monday, August 02, 2004 - 12:56 pm: Edit

Idias--which book did you decide to buy? It's not clear from your posts.

And I disagree about emergency funds vs. the Roth. Roth money is accessible in an emergency, but it's difficult, which is good--IMHO.

By Idiias (Idiias) on Monday, August 02, 2004 - 03:35 pm: Edit

A random walk down wall street.

I'm glad I got it. When I first started this thread, I was just expecting to get advice to deposit in my IRA under a certain plan, etc. But now that I'm reading this book, I'm learning pretty much everything I need to know about investments. It's like "give a man a fish, feed him for a day. Teach him how to fish, feed him for a lifetime" I know it's cheesy, but it's true. Thanks for your recommendation Massdad.

btw who said that quote?

By Bern700 (Bern700) on Monday, August 02, 2004 - 05:29 pm: Edit

i agree with massdad

By Geniusash (Geniusash) on Monday, August 02, 2004 - 10:48 pm: Edit

Dear Uptin,
I have no idea where this quote stems from. Certainly either a deity or prophet or both. Also, possibley Bronson Alcott or Janet Reno.



By Dmd77 (Dmd77) on Monday, August 02, 2004 - 11:42 pm: Edit

A number of sources attribute the "teach a man to fish" proverb to Confucius--others simply describe it as an "old proverb". Take your pick.

Personally, I thought it had something to do with the Peace Corps and John F Kennedy, but I don't know why I thought that.

By Idiias (Idiias) on Tuesday, August 03, 2004 - 03:53 pm: Edit

I've read all your posts and I'm learning alot about investments...but now I want to know this: I'm majoring in business this fall, leaving for college in a couple weeks, have 5 paychecks and my moms going to match my total earnings. So what would YOU (massdad, dmd77, etc) do if you were in my shoes?


By Dmd77 (Dmd77) on Tuesday, August 03, 2004 - 04:29 pm: Edit

$3000 in the Roth (the limit) if you have it; $200 on something absolutely frivolous; the rest in a savings account that can only be accessed with the passbook---and I wouldn't take the passbook to school (assuming you're not committed to spending the cash on your books and so on).

By Massdad (Massdad) on Tuesday, August 03, 2004 - 04:46 pm: Edit

What would I do?

It would depend on my family situation. If I came from a wealthy family, one that had the resources to cover any problem or need in the future, I'd invest in a non tax sheltered investment account, probably a Vanguard index fund to start.

If I had a more uncertain financial future, I'd put the money in a money market fund, again probably through Vanguard.

Reasoning: You need to build up an asset base. An asset base includes retirement accounts, but not as the first component. Start with readily accessible funds first. Once you make that decision, then the question is your risk tolerance. Hence my two suggestions above.

By Lil_Pat (Lil_Pat) on Tuesday, August 03, 2004 - 08:32 pm: Edit

Buy a land rover :)

By Idiias (Idiias) on Wednesday, August 04, 2004 - 12:46 am: Edit

"$200 on something absolutely frivolous"
thanks for that dmd777...you're right. working 40 hours a week this whole summer, I deserve it. lol

and massdad, when you say "non tax sheltered investment account"...couldn't that be an IRA? So what is wrong with Charles Schwab? that I should know more before I invest?

and Lil Pat: A) I don't like land rovers, I would get a BMW M5, B) I don't have enough money for a new car C) I won't be driving much the next four years D) I wouldn't use a car as an investment E) you are 14....and from canada.lol.

By Lil_Pat (Lil_Pat) on Wednesday, August 04, 2004 - 12:47 am: Edit

hey who says young people dont have taste? :) Also Canadians are peace keepers where Americans are you know what...

By Dmd77 (Dmd77) on Wednesday, August 04, 2004 - 01:30 am: Edit

And Idias, we also agree on the M5. I have 45000 miles on mine, and I think I've loved (almost) every mile of it. (There were a few bad traffic jams where the left leg got a little tired of the clutch, I think.)

I strongly believe that frivolity is worth it. Some of best memories were frivolous expenses at the time.

By Massdad (Massdad) on Wednesday, August 04, 2004 - 10:05 am: Edit


An IRA is a tax sheltered retirement account. As such it has significant penalties for early withdrawel, 10%, as do most accounts of this nature. As a result, it is a lously place to put money you might need over the next 50 years! Right now, there are a few exceptions, such as the purchase of a first home, but that could change. So, first goal should be to have readily accessible money, with NO penalty for using it.

What is wrong with Schwab? Nothing. Except...

Schwab is a brokerage firm. As such, most of their employees get paid, directly or indirectly, through commissions, or a fee - no free lunch after all. So, you need to watch out for two things, at least with mutual funds: Paying a fee to buy through Schwab when you could avoid the fee by buying direct, AND buying fund share classes that have fees built in. Many funds have, for instance Class A, B and C shares with varying built in commissions. Remember, some of this info is not the easiest to ferret out.

Now, brokerages like Schwab are the only way to buy stocks, trade bonds, commodities etc. They are not the only way, and usually not the best way, to buy mutual funds.

By Idiias (Idiias) on Thursday, August 05, 2004 - 06:12 pm: Edit

now that I know you have an M5 I am 99% more inclined to taking your advice! lol

We were in the bay area this weekend visiting my cousins, and my aunt had just bought a brand new benz, leasing it for $700/month. My mom was asking her about it, and my aunt was saying how she liked it, but anything she drives over 12,000 miles, they have to pay 15 cents per mile, and thus wanted to keep it in the garage alot. My mom, who deep down disapproved of buying a car on lease, lauged and explained that they are already paying 70 cents a mile to drive it for the first 12,000 miles, and after that it goes down to 15 cents a mile. Almost one-fifth of the original price. She said it's a benz, so go ahead and take it out as much as you want! lol It completely changed thier perspective on it.

okay, massdad, you are right. I don't want to keep this money until I'm 60. I'm hoping to have enough money by then, that a saved up IRA will mean nothing. So I'm most likely going to put it in mutual funds via my dad. Thank you for all your help. It got off to a rough start with all the annoying moms, but I'm really glad I got all this advice, and I think the best thing was getting the book to read, so now I know about investments.

Thank You

By Cheers (Cheers) on Thursday, August 05, 2004 - 07:56 pm: Edit

If you want to go into business and you have your parent's support for this...you could open up a joint trading account with Ameritrade and buy your own stocks and watch them over the internet. Great learning experience.

or..you could buy BEER!! lol.

By Geniusash (Geniusash) on Thursday, August 05, 2004 - 10:27 pm: Edit

"It got off to a rough start with all the annoying moms"

By Anxiousmom (Anxiousmom) on Thursday, August 05, 2004 - 11:10 pm: Edit

Hold on a sec: (correct me if I'm wrong guys..) with a Roth IRA you can withdraw ANY of the money you put in for ANY reason with NO penalties. (You have already paid taxes on the money!) It doesn't matter what you are going to use the money for and it doesn't matter how old you are! But you can't withdraw any of the "earnings" or interest that you have made on that money unless you follow some of the rules.
A Roth IRA is a great idea for someone young. Wish I had started years ago - and I wish I had enough money to put some in now. You might look at TIAA CREFF as they have very low fees for their accounts

By Massdad (Massdad) on Thursday, August 05, 2004 - 11:28 pm: Edit

Anxious, yes, but a Roth still does not substitute for other savings. If you advocate STARTING an asset program with a Roth IRA, I would respectfully disagree with you. Keep in mind that if you withdrew the principal, account maintenance fees on the remaining earnings would probably wipe you out in a few years, unless you got off to a great start. And a great start has been very tough the past few years.

Think about it:

For simplicity, let's assume a 5% return, and a $50 annual fee. OK. Deposit $5,000. Need the money for grad school 4 years later. Account has earned about $1000 in earnings (skip the compounding..) over the 4 years. Now there's only $1000 left in the account - the interest one cannot touch without penalty. That earns $50 per year, just enough to offset the fee. We're not going anywhere...

But wait, it can get worse. What if the performance down the road is like any of the past 4 years? You're moving backward. Remember, this ain't the 90s anymore.

By Idiias (Idiias) on Friday, August 06, 2004 - 12:25 am: Edit

Cheers, Anxiousmom, I don't understand why you don't speak up sooner. My decision is final.

Thanks for your help massdad. Keep in touch and we'll see how it goes...better yet, when you see my name in USA Today under the "Top 10 Richest Americans", I'll have you to credit....give me about 30 years....thanks.

By Idiias (Idiias) on Friday, August 06, 2004 - 01:13 am: Edit


By Cheers (Cheers) on Friday, August 06, 2004 - 01:59 am: Edit

Annoying Moms are sometimes too busy to post 'on time'.

By Middleofnowhere (Middleofnowhere) on Friday, August 06, 2004 - 07:50 am: Edit

Idiias...I tryed to tell you the same thing long ago. Seems you don't want to listen.

By Boysmom (Boysmom) on Friday, August 06, 2004 - 08:31 am: Edit

I've got to disagree with the non Roth IRA idea. My kids have put $3000 into a Roth since they started working ($2000 before the limit was raised) and they all now have a firm base on which to retire. Why? Because they started at 15 and with compounding it will be there for them to comfortably retire even if they don't add anything else once they get real jobs. And it's a great idea to put it into a Roth before they really want the tax deduction when they start making real money. Since Roths aren't deductible, it doesn't matter because they were putting it in before they even had to pay tax on their earnings since it was below the standard deduction.

They can also take money out for their first home, should they not have enough for that. But since they have been contributing so early and steadily, they now have enough to begin saving towards a home instead.

Has anyone ever heard the story about the 18 yr old who contributed $2000 to an IRA every year for six years and then stopped? His friend waited until he had a real job and started at the age of 24. How many years did the friend have to contribute before he caught up to the amount the first guy had? The answer is that he will never catch up. That's the story that convinced my teenagers to start contributing.

By Massdad (Massdad) on Friday, August 06, 2004 - 09:43 am: Edit


I think you may be missing one key component: the key to the success you talk about is to regulary save and invest. The savings vehicle is much less critical, especially in the early years when the saver's tax bracket is so low.

Do the math. Yes, there is a SMALL tax advantage to money saved in a Roth account. I maintain, however that the tax saving for most young people in college does not make up for the lack of flexibility regarding access to the funds.

Consider further. If someone has such a high income level that the tax advantage is significant, we probably should be having a completely different discussion. If someone starting college already has a secure short term future, due to wealthy relatives for instance, then yes, a Roth would be an excellent choice. Otherwise, I'm not so sure.

I'm always amazed that some folks can give dogmatic advice regarding complicated topics with only the slightest understanding of someone else's situation. Boysmom is welcome to disagree. Of course, I only answered the question of what I would do in this case. I did not tell the IP what he should do. I only explained some issues, alternatives and steered him to some more thorough information. He made his own informed choice.

Can't we leave him alone?

By Idiias (Idiias) on Friday, August 06, 2004 - 01:11 pm: Edit

My mom told me a similar story, except she compared how much of a difference it makes when my brother who is 3 years older starts at the same time as me. It takes over 15 years to catch up. But that's why I started an IRA too.

And I think I made an informed choice...it's hard...there's alot of options...and alot of advice...and...My mom said that if she sent me to the state university, here in town, which would be free, and invested my college tuition my parents are going to pay in mutual funds at 7%, I would have $2.4 million by the time I'm 46! So there is alot of pressure on me!

By Idiias (Idiias) on Friday, August 06, 2004 - 01:16 pm: Edit

And I never thought I would ever use that smiley...

By Boysmom (Boysmom) on Friday, August 06, 2004 - 03:39 pm: Edit

I'm not trying to tell anybody what to do with their money. I'm only trying to point out some facts. Although I do appreciate the fact that you say I'm entitled to an opinion.

I think the one key component some may have missed is that it does matter what you invest in when it comes to a Roth because the Principal AND the income are tax free upon retirement. That would be a huge bonus to those who plan to retire reasonably wealthy and would love to not have to pay tax on that money. So not only do they not miss out on the tax savings now as opposed to a regular IRA, or even a deductible retirement plan, but they never pay tax on that money. Also consider, that once they become wealthy, they cannot take advantage of a Roth because those whose incomes exceeed $160,000 (MFJ) cannot participate. So I tell my kids to take advantage of it while they can. Others should consider their own situations

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