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When to place 5K in your IRA


By Truthplease   Follow   Fri, 17 Feb 2012, 2:47am PST   3,060 views   19 comments
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Quick question for those investors out there. I play a pretty safe game and provide my 5K to a Roth contribution every year. The account is pretty much a target retirement fund at 2030 that tracks generally with the stock market.

I would consider the beginning of this year to be a bad time for me to push my 5K into a roth target fund. I don't see the market holding. There is 5 dollar gas on the horizon this memorial day, more political antics coming to the US, and the EU....

Do you think the markets will take a dive again this May, June, or July?

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jkennedy   Fri, 17 Feb 2012, 3:42am PST   Share   Quote   Permalink   Like   Dislike (2)     Comment 1

You can leave the money in whatever you want in your roth. If you invest it now, all of the years gains go into it, vs losing a years gains by putting it in there at the end of the year.

Having the money ready to use and in the account is probably more important than keeping it outside waiting for the market to correct, then trying to deposit it later. Either way, you're making 0% because you're not putting it into the market.

T   Fri, 17 Feb 2012, 4:37am PST   Share   Quote   Permalink   Like (1)   Dislike (1)     Comment 2

Why don't you average down if you think that the market is going down? That seem to be the way to go if you don't want to gamble your money on one side or another.

Unless someone has a time machine, I think it's anyone's call.

thomas.wong1986   Fri, 17 Feb 2012, 4:53am PST   Share   Quote   Permalink   Like   Dislike (2)     Comment 3

Truthplease says

When to place 5K in your IRA

For IRA or company 401K...Anytime as long as your putting it into a cash (money market fund).. later you spread across your choice of mutual funds... buying on markets dips/pull back.

clambo   Fri, 17 Feb 2012, 5:45am PST   Share   Quote   Permalink   Like (1)   Dislike (1)     Comment 4

If you have the cash, contribute at the earliest, Jan of each contribution year.

Vicente   Fri, 17 Feb 2012, 6:18am PST   Share   Quote   Permalink   Like   Dislike (2)     Comment 5

Agreed. I put my Roth contribution in January without fail. Even when I was unemployed I put that money in. Several years I sold equities in my individual to scrape up the money to transfer to Roth. At this point my Roth portfolio is several times larger than any other single account.

During the market downleg I jumped into T's at first, later into FINPX, Fidelity's inflation-protected bond fund. These days it'd probably be FCSTX, a tax-free bond fund.

clambo   Fri, 17 Feb 2012, 7:06am PST   Share   Quote   Permalink   Like   Dislike (1)     Comment 6

go stocks balls to the wall. the world is not all the EU and USA.

Truthplease   Fri, 17 Feb 2012, 8:32am PST   Share   Quote   Permalink   Like (1)   Dislike (1)     Comment 7

Thanks for the suggestions. I was also looking at the FCSTX. That's probably where I will go for now.

Truthplease   Fri, 17 Feb 2012, 8:39am PST   Share   Quote   Permalink   Like   Dislike (2)     Comment 8

My premise behind this question originated from reading a 2012 fund analysis and forecast. I can't find the thing now, but I stumbled on it and there was some enlighting analysis in there about the geopolitical landscape and volitility for this year.

Truthplease   Fri, 17 Feb 2012, 8:46am PST   Share   Quote   Permalink   Like   Dislike (1)     Comment 9

http://budgeting-investing.ameriprise.com/planning-and-budgeting/financial-analysis/market-strategy-viewpoint/2011-12-22.pdf

Here is one of the links I was reading. I think my serach was sparked from somebody discussing secular deleveraging in another post.

I was thinking about putting the money into a basic fund that tracks the S&P 500 when we hit a possible downturn from market volitility this year.

Dan8267   Fri, 17 Feb 2012, 11:36am PST   Share   Quote   Permalink   Like (1)   Dislike (1)     Comment 10

Truthplease says

Quick question for those investors out there. I play a pretty safe game and provide my 5K to a Roth contribution every year.

Good thinking. Everyone should fully contribute to their retirement plan and a Roth IRA is definitely something you should take full advantage of if you can. And you have to contribute for a year by April 15th of the next year or you can't contribute for that year. There's no catch up period.

Truthplease says

The account is pretty much a target retirement fund at 2030 that tracks generally with the stock market.

You mean the S&P 500 or the Wilshire 5000 index? I've been a big fan of those funds at Vanguard, however, I'm concerned that the U.S. is going to have a generation long bear market as the Baby Boomers, who own most of the U.S. stock equity, cash out to fund retirement. Gen X is way too small to meet the demand, and the Millennials are way too in debt. That's why I'm considering a world stock market index fund.

Truthplease says

I would consider the beginning of this year to be a bad time for me to push my 5K into a roth target fund. I don't see the market holding. There is 5 dollar gas on the horizon this memorial day, more political antics coming to the US, and the EU....

Do you think the markets will take a dive again this May, June, or July?

I completely agree with your analysis. However, timing the market is a really tricky thing.

There is a school of though that says you should make your IRA contributions as early as possible in order to maximize the return. Stock markets, in the long run, tend to go up in value. So contributing in January of every year instead of December can add up to considerable additional growth. Also, if you put your IRA contribution into an interest bearing investment instead of stock, you get tax-free return on the interest while you wait to convert it to stocks.

Wish I could help more, but market timing isn't one of my areas of expertise. Still, it really does seem like the S&P 500 is way overvalued at 1350 especially given how crappy the economy is.

clambo   Fri, 17 Feb 2012, 11:47am PST   Share   Quote   Permalink   Like   Dislike (2)     Comment 11

Do not try to time the market, it's a waste of time. Those who do try to time it are being paid to do it with other suckers money.
No one can see the future, but I would bet on good company stocks being good investments for retirement.
I would invest on Jan 1 of each year the legal limit and have stocks or a mix of stocks and bonds, depending on your 1. age 2. intenstinal fortitude.
My friend has been telling me the sky is falling for several years. I said maybe it is falling, but the problem is that people around the world want STUFF and they will do whatever it takes to get it.
Some examples: Pfizer makes a gazillion selling viagra in Mexico. "but, that's expensive stuff and Mexico is poor?" you say.
I say "Mexicans have no debt. They spend their money."
Apple sells expensive phones and iPads. Yet, there are riots in China over the chance to buy the lastest phone. Guys are selling their organs to buy an iPad, etc.
"But most of China is poor!" " Chinese save their money, and often have no debt."
Caterpillar is selling heavy equipment all over the world to build projects. "But, those countries are still broke, they are 'developing' or third world countries! They can't be buying Caterpillar and building new roads all the time!" "They do. Governments in these countries have access to the debt markets just like the USA. We have borrowed trillions from foreigners, so you don't think Brazil, Colombia, Peru can borrow to make highways, etc.?"
Consumers in poor countries have no debt. There also exist rich people in those "poor" countries, and they will buy stuff. BMW, LVMH, etc are selling like crazy around the world.
Energy exploration will not stop and so Halliburton is going to keep going. Energy consumption will not stop so Exxon will keep making money.
If you own stocks, you own a piece of the action. If you wait, you may miss a big day in the market. If you wait until stocks are "safe" you will be buying when they are expensive, and you'll be too old to compound the dividends they may pay out.
I lived in Mexico many years ago and had a blast. I wish instead I had bought some Grupo Modelo, Cemex, Telmex, and others with the money I blew taking chicks out to dinner.
I'd be filthy rich by now.

EastCoastBubbleBoy   Mon, 20 Feb 2012, 10:57am PST   Share   Quote   Permalink   Like (1)   Dislike     Comment 12

I dollar cost average half of it over the year... and put the balance in in January.

Vicente   Mon, 20 Feb 2012, 11:34am PST   Share   Quote   Permalink   Like   Dislike     Comment 13

clambo says

Do not try to time the market, it's a waste of time.

Hahah, I have successfully timed the market twice now.

Just dumb luck? SEZ YOU!

More like, not willing to listen to the advice of others blindly.

swebb   Mon, 20 Feb 2012, 11:51am PST   Share   Quote   Permalink   Like (1)   Dislike     Comment 14

Vicente says

These days it'd probably be FCSTX, a tax-free bond fund.

I'm not sure, but my guess is you are giving up something on returns in exchange for the tax free part...if it's in an IRA, taxes don't matter anyway. There is probably something better.

SFace   Tue, 21 Feb 2012, 10:50am PST   Share   Quote   Permalink   Like (2)   Dislike     Comment 15

swebb says

I'm not sure, but my guess is you are giving up something on returns in exchange for the tax free part...if it's in an IRA, taxes don't matter anyway. There is probably something better.

Very Good observation. In my IRA, I hold 50%+ in REIT's.

*** No federal and state income tax at the entity (Corporation/REIT) level.

*** No federal and state income tax at the shareholder level (IRA account).

Nothing beats that structural advantage as every dollar earned, flows as dividends. The government gets nothing.

swebb   Tue, 21 Feb 2012, 12:37pm PST   Share   Quote   Permalink   Like   Dislike     Comment 16

SFace says

Very Good observation. In my IRA, I hold 50%+ in REIT's.

*** No federal and state income tax at the entity (Corporation/REIT) level.

*** No federal and state income tax at the shareholder level (IRA account).

Nothing beats that structural advantage as every dollar earned, flows as dividends. The government gets nothing.

An advantage, for sure...but 50%? When you say REITs, are you talking about the AGNC type (debt side), or an entity that actually holds and leases property? (ticker symbols, please :)

The ~20% dividend that AGNC offered did lure me (on and off) for a few years, but I got scared away. That and the fact that I don't understand the business well enough to be able to identify the risks...afraid of losing my shirt. Surprisingly (?) I made as much on the price fluctuations as I did on the dividends.

SFace   Tue, 21 Feb 2012, 3:18pm PST   Share   Quote   Permalink   Like   Dislike     Comment 17

swebb,

There are about 25 REIT ETF. The biggest and well known ones are Cohen and Steers (GRI), Vanguard (VNQ), First Trust (FRI), and a bunch of ishares (State Street, Barclays now Blackrock funds).

Then there are REIT mutual funds and closed and closed funds. Most 401K that have a reasonable amount of choice have REIT as a choice.

In any case, there's about 180-200 publicly traded REIT's so the funds invest in the same companies anyway and they perform pretty much the same. 10 year performance has been around 10-12% vs 3-4% for the S&P over the last 10 years. Over the last 30 years, REIT has performed about 12% vs. 10% for the S&P. If you just pick about 10-12 of the larger companies in a variety of industries, it is pretty much the index without the fees

Mortgage REIT is a tiny pie in the REIT world as there's about 5 such companies such as AGNC, NY and CIM.

The major REIT's are:

Commercial Office building: Boston Property, (Lot of them are private like Shorenstein, and Trump)
Apartments: Avalon Bay, Archstone
Commercial/Industrial: Prologis
Malls: Simon Property, General Growth Properties
Health Care: HCN,
Other: Public Storage, Vornado Trust.

A mall such as Simon property generate cash flows regardless. They own Ala Moana and GGP owns Ceasars Forum, two of the greatest mall properties in the United States. Most REIT;s generate consistent cash notwithstanding what the value multiples may or their debt scheme. Most of the worlds riches men and women made they fortunes from real estate.

AGNC is actually a very simple business as it is run by a one floor office with about 50(very high paid) employees, Their SG&A for the entire year is only 20M, which is as small as it gets for a public company. Basically, they have about 5B in equity, buys 40B worth of MBS and profit from the spread, around 1.9% according to the SEC filing or about 780M annualized. Subtract that with the miniscule overhead and the rest are dividends. They make more money if the spread widens (say 2% of 40B instead) or they leverage even more (say 1.9%) of 45B instead). The spread is more important since that is a true indicartor of profits whereas leverage is more of a risk scheme. The caveat is the value of the 40B worth of MBS they buy needs to hold up. Some are government backed (low margins) and some are not to get the 1.9% mix. The non-government MBS they hold are likely prime loans such as 15 year fixed. The margin is effected by the default rate which more importantly effects the value of the MBS.

Hope that helps.

swebb   Wed, 22 Feb 2012, 12:34am PST   Share   Quote   Permalink   Like   Dislike     Comment 18

SFace says

Hope that helps.

Yes, that helps. Thank you.

AdamCarollaFan   Thu, 23 Feb 2012, 2:33am PST   Share   Quote   Permalink   Like   Dislike (1)     Comment 19

i used to dollar-cost average the maximum contribution, but now just dump the max at the beginning of the year.

clark howard says that the first $5K of any investment money should be dumped into a roth ira.

i love when clark answers a call and asks in his nerdy voice, "how are YOU??!"

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