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May 11, 2004 10:39 PM Subscribe
I just graduated law school and have received a significant amount of money in graduation gifts. I'd like to "invest" the money in the market but I have no idea how to do that. I'd like to use online investment software that is very intuitive. Any suggestions?
The best advice I can give is to take some of that money and invest it in securing the services a good financial adviser. He/she will guide you in your investing/saving/budgeting/planning and generally make your life a better place. That investment is certain to pay off in the long run.
posted by vraxoin at 8:22 AM on May 12, 2004
posted by vraxoin at 8:22 AM on May 12, 2004
Unless that financial adviser is on the take from certain companies, in which case they'll do very bad and unethical things.
Get a reference or two.
posted by geekhorde at 9:28 AM on May 12, 2004
Get a reference or two.
posted by geekhorde at 9:28 AM on May 12, 2004
Ditto on index funds. Not very sexy, I know, but index funds are a pretty good bet. If you want slightly more risk with a greater possible return, consider targeted mutual funds. There are a dozen or so categories, large cap, small cap, mid cap, growth, international, etc. I keep the bulk of my investments in a relatively small number of mutual funds (4). Be selective in choosing funds, there is a wide variation in fees.
I don't know how much money we're talking about here, but you might want to look into opening a Roth IRA. I think you can put in about $6K a year tax free. It is my understanding that you won't pay taxes on capital gains, but will pay taxes on what you take out, when you do take it out. At that point it will be taxed as income and you can control the amount you pay better.
If this represents the bulk of your savings, or is more than $5000 or so, I would get a financial advisor.
posted by RustyBrooks at 9:33 AM on May 12, 2004
I don't know how much money we're talking about here, but you might want to look into opening a Roth IRA. I think you can put in about $6K a year tax free. It is my understanding that you won't pay taxes on capital gains, but will pay taxes on what you take out, when you do take it out. At that point it will be taxed as income and you can control the amount you pay better.
If this represents the bulk of your savings, or is more than $5000 or so, I would get a financial advisor.
posted by RustyBrooks at 9:33 AM on May 12, 2004
Funds, funds, funds. Nothing will be more heartbreaking than paying a visit, down the road, to a relative whose gift you lost thanks to a bad stock tip.
posted by mkultra at 9:38 AM on May 12, 2004
posted by mkultra at 9:38 AM on May 12, 2004
If you want to put money in the stock market, and you're not a dedicated expert, the best way is to buy an index fund tied to a broad index of the stock market.
Exchange-traded funds (ETFs) are very convenient. Shares can be bought and sold like stocks, and most current ones have favorable tax characteristics compared to index funds (something to do with the distribution of capital gains only when you sell). There's one for the S&P 500 (SPDR), one for NASDAQ (QQQ), and so on. Barclay's iShares has a bunch of 'em that index various segments of the market.
posted by kindall at 10:04 AM on May 12, 2004
Exchange-traded funds (ETFs) are very convenient. Shares can be bought and sold like stocks, and most current ones have favorable tax characteristics compared to index funds (something to do with the distribution of capital gains only when you sell). There's one for the S&P 500 (SPDR), one for NASDAQ (QQQ), and so on. Barclay's iShares has a bunch of 'em that index various segments of the market.
posted by kindall at 10:04 AM on May 12, 2004
If you like Index funds take a look at Coffeehouse Investing -- the site is basically an idea or concept about investing, they don't sell anything other than how to invest and get on with your life doing other things.
posted by stbalbach at 10:11 AM on May 12, 2004
posted by stbalbach at 10:11 AM on May 12, 2004
Oh, in my message above, SPDR is the name of the ETF (Standard and Poor Depository Receipts); the actual ticker symbol is SPY.
posted by kindall at 10:14 AM on May 12, 2004
posted by kindall at 10:14 AM on May 12, 2004
RustyBrooks: IANAAccountant, but I think Roth IRAs are actually capped at $3000 a year right now, with increases over the next few years. You pay into a Roth using after-tax income (i.e. you have it deducted from your checking account) and you don't have to pay tax on aaaaany of it when you retire (although I think you do have to pay tax if you take money out early without A Good Reason). You're totally right, it's a really great basic place to start for investing. Especially if you use an online investment calculator thingy and see how the compound interest racks up...
posted by bcwinters at 11:42 AM on May 12, 2004
posted by bcwinters at 11:42 AM on May 12, 2004
With a Roth IRA, you can take out any of your contributions without tax or penalty even before retirement age. After all, you've already paid income tax on that money. You will, however, pay a penalty if you make a withdrawal of your earnings before retirement age.
This characteristic makes the Roth IRA a really good place to put your "emergency fund." You pay no taxes on interest ever, but you can still get your original money out if you need it. Of course you want to leave it in there if you can, so it'll earn you interest, but it's nice to know that it's accessible in the event of a crisis.
Unlike the traditional IRA, a Roth IRA does not require you to take withdrawals after a certain age. This means it can continue earning interest while you use up your other retirement savings, and of course all that is still tax-free.
The contribution cap for 2004 is indeed $3000 for both traditional IRAs and Roth IRAs combined.
It's my understanding that Congress is considering a proposal to combine IRAs, Roth IRAs, Medical Savings Accounts, and Education Savings Accounts into one type of account that can be used for any of those purposes. It'll likely have a higher contribution limit, around $10,000 IIRC.
posted by kindall at 12:10 PM on May 12, 2004
This characteristic makes the Roth IRA a really good place to put your "emergency fund." You pay no taxes on interest ever, but you can still get your original money out if you need it. Of course you want to leave it in there if you can, so it'll earn you interest, but it's nice to know that it's accessible in the event of a crisis.
Unlike the traditional IRA, a Roth IRA does not require you to take withdrawals after a certain age. This means it can continue earning interest while you use up your other retirement savings, and of course all that is still tax-free.
The contribution cap for 2004 is indeed $3000 for both traditional IRAs and Roth IRAs combined.
It's my understanding that Congress is considering a proposal to combine IRAs, Roth IRAs, Medical Savings Accounts, and Education Savings Accounts into one type of account that can be used for any of those purposes. It'll likely have a higher contribution limit, around $10,000 IIRC.
posted by kindall at 12:10 PM on May 12, 2004
I'll throw in another vote for index funds (here's a good article from the Motley Fool on those funds). You may also want to try your bank (if they offer brokerage accounts) as a place to to do your investing, as it can be very convenient to walk in a talk to someone rather than having to deal with online brokerages.
You may not want to go the RothIRA route depending on your circumstances. Keep in mind, even if you do, you'll still have to decide how you want that ira money invested. First off, you'll want to determine if you qualify to contribute to an IRA...I believe you actually have to be earning an income to contribute (so, if you've been at least working part time in school or are entering the workforce now, you're probably good to go). Second, if you even think you may need that money in the next few years, I'd just keep it in a regular investment account, you could lose a chunk of your money through penalties. However, if you're looking to start investing for retirement, its a great place to begin.
p.s. adrober, I love your site.
posted by dicaxpuella at 1:09 PM on May 12, 2004
You may not want to go the RothIRA route depending on your circumstances. Keep in mind, even if you do, you'll still have to decide how you want that ira money invested. First off, you'll want to determine if you qualify to contribute to an IRA...I believe you actually have to be earning an income to contribute (so, if you've been at least working part time in school or are entering the workforce now, you're probably good to go). Second, if you even think you may need that money in the next few years, I'd just keep it in a regular investment account, you could lose a chunk of your money through penalties. However, if you're looking to start investing for retirement, its a great place to begin.
p.s. adrober, I love your site.
posted by dicaxpuella at 1:09 PM on May 12, 2004
Response by poster: Thanks everyone. I have about $1000 in gifts and I was basically looking for a way to learn the market by investing this relatively small sum. I took a Business class this semester and our professor similarly suggested that our best bet, investment wise, was investing in a market index fund. So I may actually do that now. One more time, though, is there a website that will guide me through the process and let me track my earnings/losses? Thanks, again.
posted by adrober at 2:40 PM on May 12, 2004
posted by adrober at 2:40 PM on May 12, 2004
is there a website that will guide me through the process and let me track my earnings/losses?
Sure -- your broker's.
posted by kindall at 3:04 PM on May 12, 2004
Sure -- your broker's.
posted by kindall at 3:04 PM on May 12, 2004
Alternately -- if you have student loans, you could use the $$$ to make a dent in 'em.
And congratulations, BTW!
posted by davidmsc at 4:13 PM on May 12, 2004
And congratulations, BTW!
posted by davidmsc at 4:13 PM on May 12, 2004
The best way to learn how to trade, how spreads work, etc. is actually a site that has been discussed here before: The Iowa Electronic Markets. There you can trade to your heart's content for free (well, a $5 fee to create an account).
There are no penalties for taking money out of a Roth, although most investment companies do make it a pain to take money out of IRAs before the magic age (usually it has to be done in writing). It's annoying, but it is one level of security to make sure that really is your crisis fund.
Some investment company websites do suck, so try Yahoo Finance to track your portfolio if that happens to be the case.
I would advise against paying off student loans, especially with rates as low as they are today. If you consolidate fresh out of school, you should get an interest rate at about 2.9%. Put the money saved into an emergency fund. Stocks are not a good emergency fund, but short-term or even intermediate term bonds are, if you can tolerate a +/- 10% variation in the valuation of your principal. Remember, it's your emergency fund, so a little bit of risk is essential.
$1000 is not worth it to go to an investment advisor, unless you can find one for free. You'll find the good fee-only advisors deal with six figures and up.
posted by calwatch at 6:56 PM on May 12, 2004
There are no penalties for taking money out of a Roth, although most investment companies do make it a pain to take money out of IRAs before the magic age (usually it has to be done in writing). It's annoying, but it is one level of security to make sure that really is your crisis fund.
Some investment company websites do suck, so try Yahoo Finance to track your portfolio if that happens to be the case.
I would advise against paying off student loans, especially with rates as low as they are today. If you consolidate fresh out of school, you should get an interest rate at about 2.9%. Put the money saved into an emergency fund. Stocks are not a good emergency fund, but short-term or even intermediate term bonds are, if you can tolerate a +/- 10% variation in the valuation of your principal. Remember, it's your emergency fund, so a little bit of risk is essential.
$1000 is not worth it to go to an investment advisor, unless you can find one for free. You'll find the good fee-only advisors deal with six figures and up.
posted by calwatch at 6:56 PM on May 12, 2004
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If you want to put money in the stock market, and you're not a dedicated expert, the best way is to buy an index fund tied to a broad index of the stock market. Look for a fund with very low management fees and no sales charges on entry or exit.
Most of the major fund companies have easy-to-use Web access. I use Fidelity's Spartan funds, and they're incredibly easy to manage through their Web site.
posted by fuzz at 8:10 AM on May 12, 2004