Investing Outside of a Tax-Sheltered Account
November 25, 2009 10:46 PM Subscribe
Is it worth it for a student who makes less than $10,000/year to invest outside of a tax-sheltered account?
I recently opened a Roth IRA (with a target date retirement fund). I am a student and make less than $10,000/year so my contributions to the Roth are rather modest. Although I recognize the value of slowly investing towards retirement, I cannot help but feel an itch. The prospect of using my savings to make more money for short-term use is tempting.
I understand the risks involved in investing. However, I've recently been thinking about investing in the Vanguard STAR fund (low minimum amount, no annual fees, moderate risk) outside of a tax-sheltered account. I'm not expecting a high rate of return, just a something that is above the current 1.xx% rate I receive from a high-yield online savings account. I envision myself being a lazy investor who will settle for a lower rate of return and spend valuable time doing the things I love. But, what are the ramifications of doing so?
For example, would it be worth it to invest the minimum amount for the Vanguard STAR fund? What would be the tax ramifications (e.g. capital gains tax...)? Am I being naive in thinking that I can simply invest some money in January, subsequently contribute a small amount over the months, and take out a couple hundred bucks in December?
I am aware that there are other funds out there with higher rates of return than the Vanguard STAR, but I can only afford this particular fund's minimum at the moment. I will definitely reallocate once I've contributed past the minimum of other funds. My question, however, is what can I reasonably expect as a small-fish investor in his early 20's who is still in college?