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What are your thoughts on IRA's and 401k's? What alternatives are there?

I never knew that it was an investment until I was talking with my mom the other day. Everyone has been telling me that I need to start thinking about setting one up. But in this economy why would I even want my employer to match what I put in just so that the market can bottom out and we lose it all. What alternatives are there to a 401k or IRA

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Anonymous

Asked by Anonymous at 5:16 PM on Mar. 26, 2010 in Money & Work

Answers (9)
  • The reason why you should be contributing to 401k's and IRA's is because these are not short term investments. In the history of the stock market, the trend always goes UP. There are 5 and 10 year trends where the market falls and people lose a bit of money, but also in those 5 and 10 year trends the market goes up exponentially. Actually right now is a good time to open an IRA because the economy IS bad and stocks are trading at lower prices, that means they are on sale! The way you are thinking is short term, in the long term you can make a lot of money. As far as 401k's go, most employers will give you a match. That means that you get to invest and keep their money. My husbands employer matches $3 for every $1 he invests. That's pretty awesome! Yes, we took a big hit when the market fell, but we are already making that money up and the economy is still bad. Find a good financial advisor.
    Anonymous

    Answer by Anonymous at 5:43 PM on Mar. 26, 2010

  • Learn about that at richdad.com they are losey investments.

    IraqiVetWife

    Answer by IraqiVetWife at 6:09 PM on Mar. 26, 2010

  • Iraq, where do you get off at? You are insane! An IRA IS NOT AN INVESTMENT! It's a tax sheltered account that you can put wherever. In a savings account, in a CD, in a money market account, in stocks, in mutual funds in bonds, etc. What you do with the money determines whether or not it is a good investment or not.

    A 401K is done through your work. Usually with a match. Sometimes there are specific restrictions like you have have to invest "x" amount back into the company. So if the company goes bankrupt, you've lost part of your investment.

    The way an IRA (individual retirement account) and a 401K work, is every dollar you put in up to a certain amount is tax deductible. So if you want to put in $5000, it's more like putting in $3750 if you are in the 25% tax bracket. ($5000 times .25 is $3750) so it saves you money in taxes and you get a bigger investment.
    Anonymous

    Answer by Anonymous at 1:30 AM on Mar. 27, 2010

  • Continue:

    The money in a 401K and an IRA grows tax free until you pull it out. You are also forced to pull so much out after a certain age.

    A ROTH IRA on the other hand, allows you to contribute the save amount ($5000 a year) as long as you made more than $5000 that year. If you are a SAHM and your husband works you can also contribute. Unlike the IRA you pay taxes up front. Then the money grows tax free, but when you take it out, NO TAXES! Some people find that they pull more money in retirement so it's worth it to do a ROTH. Look into both and decide which is better for you.

    Generally speaking- and I mean really generally speaking- the closer you are to retirement the more you should look into an IRA rather than a Roth IRA.

    Why should you invest your money? Well let's put it this way. The stock market did go down, but if you look, just this past year the DOW has gone up 60%. If you invested prior to that, your money
    Anonymous

    Answer by Anonymous at 1:34 AM on Mar. 27, 2010

  • continue:

    is back. So it's really not the end of the world. You can protect yourself by diversifying. Kinda like don't put all your eggs in one basket type of thing. Don't put all your money in one stock. A way to diversify is through a mutual funds. Mutual funds buy lots of stocks sometimes in different areas of the market, sometimes all over so pick which ones you'd like. That way if one company goes under you didn't lose all your money.

    Also if you keep your money in a savings account, CD, or money market account, keep in mind that it's getting eaten alive by inflation which has averaged 4% a year.

    So you do need to save money for retirement since social security definitively isn't going to cut it. Look into tax sheltered retirement accounts to save you money and HOLD ON FOR THE RIDE. If you are going to sell your stocks, remember buy low SELL HIGH. Don't freak out when the market is bad, or you will lose your money.
    Anonymous

    Answer by Anonymous at 1:37 AM on Mar. 27, 2010

  • Get that 401k and max out the matching! You will never again have the opportunity to save money tax free at a young age.
    rkoloms

    Answer by rkoloms at 8:06 AM on Mar. 27, 2010

  • I haev to agree with (most) of the other posters. IRAs and 401s are meant to grow over time so that you have the money when you retire. They are not a quick investment that you get to cash out after a year. If you put the money in, invest it properly (see a financial advisor, they're free just to talk to you at most places, like we have one at Edward Jones), it will grow over time. Even if the market goes down, keep contributing because it will go back up.

    Look at it this way, if you start your IRA and shares are $5 each and you put $100 into your IRA, then you got 20 shares. If the market goes down, that means you get more shares for the same amoiunt you've been putting in. So if the market goes down and shares are $1, then you just bought 100 shares!!! When the market goes back up, your rate of return (the money you make) skyrockets. That's why you should NEVER pull out or quit contributing when the market slump
    SherriPie

    Answer by SherriPie at 8:38 AM on Mar. 27, 2010

  • I would also add that you should see a financial advisor to get accurate information and suggestions. They can tell you about the different kinds of investments (mutual funds, IRAs, CDs, money market accounts, etc.). They'll ask you a lot of questions and determine how risky you want to be. The younger you are, the riskier you should be because you have a long time to recover if there is a slump. Once they determine what you want, they'll help you decide on the right investments for your age, income, lifestyle, etc. Start saving now for retirement because your money has a chnace to grow and grow.
    SherriPie

    Answer by SherriPie at 8:42 AM on Mar. 27, 2010

  • Max out the 401k match! It is FREE money. Rarely is anything free, but this is. This is a benefit your employer offers and you should take them up on every penny. If they offered to put extra money in your paycheck would you tell them no?

    When investing, roll with the ups and downs. As you get closer to retirement move your money to safer investments like bond funds and/or cd's. If you are really worried choose a safer fund from the choices they offer for the 401k's..they should offer several with different levels of risk.

    Remember, it is always better to save than not to.
    yourspecialkid

    Answer by yourspecialkid at 1:09 AM on Mar. 28, 2010

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