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Invisiblenalyudi
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so i have a little bit of money
    #8411892 - 05/17/08 03:16 AM (15 years, 8 months ago)

okay here is a quick and dirty of my situation. im 22 have ~25,000 saved. Im still in college, but have tuition 100% covered and live off a monthly stipend that more than gets me by with my simple way of living. i want to start a very hassle free retirement account.

i will still have money set aside from this 25g for emergencies. i dont have any interest in buying a house due to having a good amount of schooling left. so i was thinking a roth IRA. the current amounts you can put in a max of 5000 per year. after the initial investment that would leave me with 20g. i was thinking spreading that money throughout cd's until each year is up and i am ready to drop in another 5g.

because i want this to be very hassle free i was thinking of going with a discount broker like t. rowe price or vanguard. yet this whole ordeal worries me because of the current falling markets.

the falling market worries leads me to another account i have. i have life insurance with an annuity fund rider. its max is 5000 per year as well and is currently at a rate of 6.5% with a guaranteed rate of 4% for the life of the policy. would putting money into this be a better idea for now due to markets?

does anyone have alternative suggestions for me to research? is this a descent plan of action?

i really appreciate any and all guidance. :mushroom2:


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OnlinegeokillsA
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Re: so i have a little bit of money [Re: nalyudi]
    #8412867 - 05/17/08 01:32 PM (15 years, 8 months ago)

First off, big ups on the $25K in savings - you have a healthy headstart on many of your peers I'm sure! :thumbup:

However, I'm a little unsure as to why you have a life insurance policy at 22 years of age (unless you're married and/or already have children).  While the stated 6.5% and guaranteed 4% rate of annual return isn't too bad, I would personally prefer to put that money into higher risk/reward investments such as the stock market; and that's just what I'm doing at 25 years of age, in both a Roth IRA as well as a standard ol' investment account for monies that I have not yet been able to contribute to the IRA.  I've been running my Roth IRA since October 2007 (coincidently right around when the markets peaked!), so I have been able to contribute for both the 2007 and 2008 years, for a total contribution of $9000.  Through conservative investments in high yielding stable stocks such as AT&T (T), which pays a practically guaranteed 4% annual dividend on top of any share value appreciation, as well as putting half that money into the proven Ken Heebner's CGM Focus Fund (CGMFX), that $9000 has already grown to over $10,418 in only 7 months!  That's a better than 26% annualized return, SMACK in the middle of this "terrible" stock market!

Because of the long-term time horizon, I believe you will make significantly more money if you put your savings into riskier investments at your age.  Though the stock market will always have corrections and recessions, over the long-term it has been the highest yielding asset class available, and at 22 years of age, you have plenty of time to weather the hiccups along the way and bask in the highly probable outcome of a much better annualized return than you'll be getting from your life insurance policy.  The stock market often requires a somewhat contrarian approach - It's often when the market looks its worst, that it has historically been the best time to invest for the long haul.

Now I'm not very well appraised on life insurance (because I've no need for it at the present time), so if you could explain in a little more detail your annuity fund rider, such as the withdrawal process, any penalties for early withdrawal, fees that are charged, and why you decided to setup your money that way, I would appreciate the education.  From my belief that you will be penalized for early withdrawal and probably get taxed not by the government but through various fees from whomever manages your annuity, the Roth IRA makes heaps more sense.  With the Roth, you will be able to invest in higher returning assets and will be able to withdraw your contributions (not including any interest incurred) at any time without any penalty (not to mention its free to setup and manage).  This seems to be the much more flexible, and potentially more rewarding course of action.  Invest in a stock market index like the S&P500 for a no brainer approach, or hand off your money to a diversified set of proven fund managers and the only thing you'll have to do that's "hands on" is check periodically to make sure that the manager of your fund hasn't left.

You're young, and you should take on a little more risk because it's much easier for you to recover from potential losses at this age, than it will be when you're older.  And if history is any guide, provided that you are a healthy adult who intends to live a long life, you should easily be able to make a higher return on your money outside of your life insurance fund (not to mention, it'll be money that you'll be able to use during your lifetime).

Then, if there comes a time in your life where you may not have many assets to will to others, and you have family to care for (such as a new child or a dependent that cannot care for themselves), consider TERM life insurance.  It's cheap and effective, and you can zero in on the periods in your life when life insurance will be most beneficial to your loved ones (all the while using the extra money in your pocket for higher returning investments).  Life insurance is not something that most people need, and is something that many people are manipulated into believing they need, in my opinion.

Just my few cents of course, I don't know about your personal situation and can only speak from my own perspective.  With no children and no dependents, it would be ridiculous for me to restrict my potential asset growth by committing money to a low-yielding life insurance fund.


Edit: I found this document from 2002 about annuity riders, and with those waiting periods, complicated structure, and fees fees fees, I still don't care for them! :tongue2:
Quote:

Excerpt:

The fact that stocks historically over time come out ahead during rolling 10- to 20-year
time periods argues that the investor doesn't need to pay extra to get guarantees for
funds that are usually invested for that long anyway. “If you're a long-term investor, the
death benefit is not very meaningful,” says Peter Di Teresa, a senior analyst at
Morningstar. “It would have to be an astonishingly bad market for your investment to be
worth less than what you put in if you had invested for several decades. The longest bear
market we've typically had has lasted only a few years.” The death benefit might make
more sense if you knew you were going to die within five years, and you thought the
market was headed for bear territory.

The same logic makes equity-linked products, while psychologically reassuring, not
necessarily worth the extra cost. “What happens with equity-linked products is you trade
away some upside growth for downside protection, which is short term,” says Larry Elkin,
founder of Palisades Hudson Management in White Plains, N.Y. “If we know you need to
spend a certain amount of money within the next five years, you keep it out of stocks. If
you can tie it up for longer, you have the ultimate equity-linked investment — it's called
equity.”





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Edited by geokills (05/17/08 02:00 PM)


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Invisiblenalyudi
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Re: so i have a little bit of money [Re: geokills]
    #8413074 - 05/17/08 02:20 PM (15 years, 8 months ago)

the annuity rider is a privileged account not available to the general public. you pay a monthly rate for insurance, which i have the lowest they go (three dollars and some cents). then by carrying their insurance that allows to to have this annuity fund rider that you can invest up to 5000 a year gaining interest at 8% for the first year, then it drops to the current rate of 6.5%, and has a guarantee of never going below 4%. there is a penalty for early withdrawal, but you can roll it over to another retirement type account with no penalty. i dont have much money in this account right now anyway, around a thousand or so.

i was leaning heavily toward the roth ira over the annuity rider anyway, i just thought id ask. i am willing to take a higher risk with money waiting to go into the ira due to the way i live and having no dependents. since i have no faith in my own abilities (at least in this area) i guess my next step will be finding a financial adviser with a strong track record then try to ride that pony all the way to the bank :grin:


thanks geo, the input is much appreciated.


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Invisiblenalyudi
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Re: so i have a little bit of money [Re: nalyudi]
    #8413081 - 05/17/08 02:22 PM (15 years, 8 months ago)

holy cow you went and changed it on me while i was typing :lol:


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OnlinegeokillsA
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Re: so i have a little bit of money [Re: nalyudi]
    #8413193 - 05/17/08 02:48 PM (15 years, 8 months ago)

Heh, I didn't change it all that much... just wanted to make some of my statements clearer and include more supporting evidence. :smile:


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