Investing 101: IRAs, ROTHs, Individual Accounts

This is a very short explanation, and many nuances are glossed over – but it’s the basics!

Here is a short game plan, and if you wanted to make a five-day strategy out of this, I’d be very proud of you.

  1. Educate yourself on:
    1. the options and types of accounts
    2. the products you can invest in
    3. the parts of the market you’d invest your money in
  2. Start! If you’re going to invest, it’s better to start investing sooner to reap the rewards:
    1. Select a brokerage and open an account
    2. get at least $500 together

WHAT IS AN IRA

An Individual Retirement Account.

Remember you can withdraw money with no penalty for a first home from an IRA – but only a total of $10,000 over the course of your life. With some IRAs you can also withdraw without penalty for qualified medical or unemployment expenses.

OTHER INVESTING

… and then there are CDs which get lower returns and stores your money for a pre-determined amount of time, but are safer investments since the return is guaranteed. You also can go rouge and buy mutual funds/ETFs in an Individual Investment Account without putting retirement rules around them. You will be taxed on profits you withdraw from these accounts.

From the beyond brilliant Cathy Ack comic (RIP)
From the beyond brilliant Cathy Ack comic (RIP)

HOW DO I GET AN RETIREMENT ACCOUNT?

1. Your place of employment may offer a retirement option, often a 401k. Take them up on it! Often they’ll match your contributions and that, friends, is free money. But read the fine print – sometimes their match will not become yours until after a year or two of employment.

2. If you are self-employed and have a EIN/TIN, you can register your business in a SEP IRA – a Self Employed Plan. Then your business can put pre-tax money to lower your taxable income.

3. You can open an individual or Roth account and put after-tax money in an account. This money you can take out anytime, it’s yours, you pay taxes on your earnings. With a ROTH IRA you won’t pay taxes on the disbursements but there are other rules. You can also take the principal [your initial investment] out as long as its been 5 years.

HOW CAN I SIGN UP FOR AN INVESTMENT ACCOUNT OF ANY KIND?

These days you can open many kinds of investing accounts online, retirement and otherwise. Be prepared to provide your social security number, and only ever type it into a URL that starts with HTTP*S* <– with the S

BROKERAGE FIRMS
These kind of places offer all kinds of IRAs and Individual Investing and are called brokerages. There are many more but these are well-known:

  • Fidelity
  • Charles Schwab* I have my SEP IRA with Charles Schwab and it’s always been easy.
  • Vanguard
  • Edward Jones*
  • Betterment sure knows how to make a nice website, and they have ROTH and regular IRAs.

Sometimes you can just open an account with the company you want to buy a mutual fund from, but it might make more sense to have an account with a brokerage. For example, Domini lets you open an account with them via a bank.

I liked the investment resources Fidelity provided, including information for women about investing, they did the video above:   https://communications.fidelity.com/pi/2014/women_investing/

For myself, I use Charles Schwab for my SEP IRA investments. I picked Schwab because I was familiar with their interface from a job I’d had: http://www.schwab.com/public/schwab/investing/accounts_products/investment 

There are also other places you can open investment accounts: many banks now offer this, and you’d manage it online with your other banking.

If you wanna be baller in the stock market, you want an individual brokerage account. Places like Etrade are examples, and I liked this online brokerage comparison tool so you can pick one that works for you. I have an online brokerage account with Capital One [who suck] but they have no minimum account balance so I was able to get started with a few hundred bucks.

PRO TIPS
Often you pay “per trade” unless you set up an automatic deposit. Many accounts have minimums: $100, $500, $1000 are common minimums you’ll encounter, depending on the brokerage and the fund.

 

WHAT DO I INVEST IN? A BASIC DESCRIPTION

You’re buying unsecured and mostly fictionalized conceptual chunks of value that technically somewhere up the pipeline has a paper certificate,
that you’re unlikely to see. That’s what a stock is. It’s the market valuation of a company, which can go up or down.

Mutual Funds are run by humans with computers. Real talk: you could lose all your money invested in if a stock tanks. Often people buy Mutual Funds because these amalgamate many stocks, usually in the same market sector, to reduce the risk of the value reducing in any one. If one “goes down,” another may “go up.”

Similarly, there are also ETFs [electronically traded funds], which are run by computers with humans kinda checking in on them.  These take a broader market sector and automagically buy and sell multiple stocks and sometimes bonds. The NYSE ain’t what it used to be when the yippies did their great trick.

HOW DO I INVEST IN SOMETHING THAT IS IN LINE WITH MY VALUES? check out this whole post on investing when you hate capitalism!

WHOA THAT WAS A LOT OF INFO!

Yeah, I can’t say that I’m sorry. There’s a lot in here to know about, so start by educating yourself, and then go ahead and make decisions. 🙂

*Why so many men’s names?!

None of this is a specific instruction to use a specific company or fund product; all examples are for educational purposes only. Do your own homework and make your own choices, friends. There’s lots of good options.