I have been delaying starting an IRA for several years now and even opened an account, but never deposited the funds. Tonight I found got the courage to transfer funds and make my first investment into it. Granted, it was only with $600, but I am relieved I finally did it. I really want to hold onto cash to save for a down payment on a new home, but not investing in my retirement has always weighed on my mind and while the stocks are low, now would be a great time to start (granted the market has bottomed or is near to it).
Etrade provide me with a survey that helped me decide what allocation I should use - I found my level of risk called for 40% large cap, 28% small cap, 12% international, 18% fixed income, and 2% cash.
Tonight I only invested in the large and small cap, but found that task quite daunting and hope I made the right decision. I selected the two funds because their Morning Star ratings were both 5 stars, no front or end loads, no transaction fees, very high 10 year market performance with low standard deviations, and performed high compared to the other funds over the past 10 years. But I know I should be looking at other measures, this seemed to easy.
Are you managing your own IRA or do you have a manager that picks the funds and does the allocation for you? If you choose your own, what measures do you use to pick your funds? As you continue to add funds to your IRA, do you always add to the same large cap, or do you select several large caps? Do you look at the p/sales or dividend yields?
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Comments: 7
I manage my IRA, and advise my husband on his (not that he listens).
I am not a big fan of funds, but they are a good place to start, and the best choice for someone who does not want to spend the time and energy on individual stocks.
The allocation that E-Trade is suggesting is pretty standard. With the small account you are currently working with, you were right to just pick a small cap and a large cap fund. Do not bother picking more than one fund of each type. It doesn't give you better diversification or returns, just more decisions. If you read the prospectus, you will see the holdings of the funds within a type are very similar.
On allocation: As you continue to invest, try and keep the balances of your small cap and large cap about even. This will force you to buy low. Over time you would be wise to move money from the best performing fund to the other. This is something that only needs to be done once every year or so.
One market timing tip - small caps tend to perform better than large caps as the market recovers from a bear phase.
Welcome to the pay it forward group too!
When you manually pick your stocks, what are you looking for? How do you pick which ones to invest in or not?
Thanks for the advice about the small cap, next month when I add more I'll add it to the small cap :) I did not realize that small caps will perform better as the market recovers.
With half of my money, I am an aggressive trader. For this I look for stocks with volatility, not necessarily what an investor looks for.
I also have a stack of 'investment' stocks in my IRA. For these I look for a business that is stable and pays a good dividend, or growing at a steady pace without too much debt. I tend to focus on an industry, then look for the best two or three stocks in that industry.
Needless to say, most of my 'investment' stocks are all below where I bought them. I just monitor the companies and industries, watching for signs that they will not recover. This would prompt me to sell. Otherwise I am holding on, expecting a recover possibly in late 2009 or early 2010.
Ms Meacham's impeccable posts prompted me to look up the HTML for bold text.