I opened up a Roth IRA with Vanguard (Target Date 2050) not too long ago and continues to be in the red. I understand with the way the economy is that this is not surprising. My question is should I continue to put money into it or wait until we see some upside? Should I save the money I would be putting in to purchase other funds; bonds?

Since you didn't tell us your investment plan or goal, we'd have to infer that this is strictly for retirement since you have a Roth. I'd keep investing in the Roth eventhough the market remains shaky. You're buying shares while they're on sale.

I agree with tightwad. Stocks are going to go down, and from the selection you have made for your investment it seems like you will be in the market for awhile, so buying them on the down trend is really just buying them on sale for the long run.

Best practice is to just set a automatic withdrawal from your checking or savings every month, 2 weeks, or w/e works for you. I personally have it setup to take out the amount that will max it out for the year the day after i get my check (so ~200 a paycheck goes straight to it.) In the long run this should work out for me best because it eliminates human error (read about dollar cost averaging to learn how it works.)

Will the market go down? Yes. When and how much I can't tell you, but it will go down over the life of your IRA, so be prepared for it.

Three words: Yes, yes, yes!

This is a fabulous LONG TERM investment. Don't pay attention to the current downward trends. It's hard to make sense of it right now, but I can almost guarantee that the prices you are paying today are going to be bargains in in the next decade. It's a wonderful time to buy if you don't need the money within 10 years or so.

Don't give up. Set up automatic investments to buy shares every month on a random date. Don't bother to look at your balance. Don't bother to check the financial news or check your index fund's weekly or daily price numbers. It's a waste of time and mental energy.

If you just forget about the money you are investing, you'll never miss it, and ten years from now, you'll be sitting on a sizable nest egg!

Thanks guys. I guess as my first real investment I was hoping to see green and not red. But definitely makes sense that it's more of a bargain to buy now.

Looks like everyone else convinced you, but I agree, keep investing . Bargain time!

This is something that I've wrestled with as well, and it's kept me from starting my retirement fund. This is probably a dumb question - but are you/can you lose your principle with a Roth? Like say I start out with $1000. With the market tanking am I potential losing money every month and after a year I've only got $900 in my IRA?

I was setting up a Roth IRA account online with T. Rowe Price, but got frustrated with it. It wasn't clear to me which fund I could choose from was an index fund. And the current interests rates on almost all the accounts were negatives. Wouldn't I be better off just putting my money in a CD or something for the next couple years? Or maybe saving a small percentage for retirement and throwing the rest at my student loans, if the equation is get negative interest on my money vs. pay off loans at 5%.

Yes. Risk and reward are irrevocably tied. If you want big potential gains, you risk big potential losses.


First, you need to stop thinking of it as interest, because it's not. It's growth (or negative growth). As for what you're better off doing, that's a personal decision, based on your risk tolerance. Some folks here advocate paying off debt at all costs, and I can't argue with the notion that this is a guaranteed return. Other folks will argue that the long-term growth of stocks is unbeaten by any other investment and with regard to IRAs (Traditional or Roth), every year you pass up investing is a year you can never get back. Personally, I think the right answer varies depending on the nature of the debt (whether the interest is tax deductible or not, etc.), the size of the debt, the interest rate, your income, etc.

So rather than just give you an answer, I'll direct you to read The Full Story from Transparent Investing. It's an easy and relatively short (about 53 pages). It will help you understand the risk/reward relationship, which in turn should help you feel better about where you should be putting your money. It won't address your debt (it's about investment, not personal finance overall), but your risk tolerance should tell you that. Just remember that what you'll get out of the paper is that you can't time the market. It's fine if you want to put your money toward debt repayment rather than investment, but doing so because the market is bad right now and might get better later is the wrong reason. You don't know if the market will stay where it is, go down or go up in the near term. All you really need to figure out is whether you'd rather pay off debt now or invest. The actual movements of the market aren't relevant because you can't predict them.

At T. Rowe Price the index funds names end with the word "index." Total Equity Market Index is an example.

If you did this recently you likely found the year to date or current return was negative, not the interest rate. That's because stocks and bonds have lost money this year. You would find that with every mutual fund company.

A Roth IRA is a type of account that offers tax advantages. Within the Roth IRA account you can hold investments including stocks, bonds, mutual funds, cash, CDs, and so forth. You don't make a choice between a CD and a Roth IRA. You decide whether to register your account as a regular account, traditional IRA, or Roth IRA. Then you decide what to buy in that account (CD, mutual fund, etc.).

If you do not want to take the chance of losing money then you should stick with FDIC-insured CDs. They will pay you a certain amount of interest but will not decline in value. There is absolutely nothing wrong with investing conservatively like that except that you run the risk of your money growing slower than inflation. This means that at retirement you might have a lot of money but it may not buy as much as it would today.

Good luck and don't worry about asking dumb questions. Every single one of us here started out knowing little or nothing about these things. We've all learned along the way, usually by asking questions. You will learn too if you ask a lot of questions. We're here to help and to learn from each other.

Hey thanks guys, your responses were really helpful. I checked out The Full Story also and re-read JD's GRS guide to IRA's. And I was like OK I'm just going to bite the bullet and set up my Roth IRA right now! Cut to a half hour later and I'm super frustrated and going to put it off again. Apparently the rules have changed for T. Rowe Price and you now still have to meet the minimum to open ($1000) even if you sign up for automatic transfers with their Asset Builder service. I had planned on seeding an account with $300 to start, so I don't want to go that much over budget (even if it's for a worthy cause) without thinking it through more. I've got $5000 in an emergency fund and I was going to pull the $300 from an extra $700 I have in liquid savings. I'll just now consider the $700 my retirement start and it shouldn't take me long to get the extra $300. I'm tempted to pull it from emergency, but I want to get myself out of the mindset that I can tap into my emergency fund for non-emergencies (even though I haven't done that).

I'm just going to force myself to set up the account or I'll never do it. Vin Tek's response to stop thinking of the negative as interest was particularly helpful. Honestly I do not like risk and retirement and retirement accounts seem so ephemeral to me. It feels like I'll just be sending away my money, if that makes sense. But I do know I wish I had already started one a long time ago. When I was about 24 I was hellbent on starting one and let the same barriers stop me. I can't go back in time, but at least I can help my future self out!

Gabby, the important thing is that you start. And yes, you are sending away your money and yes, it does seem ephemeral. There are going to be periods when you'll feel despair, watching your balance go down, even though you're sending a bit of money in every month. But what's important to remember is that when the market goes down, you're buying shares on sale. When it goes back up (and it will in the long term), all those shares you bought in a down market will go up with it. There have been years when my losses have exceeded my entire salary. Those are years where I felt like I'd worked hard with nothing to show for it. But I was wrong. What I had was more shares than I'd started out with. And when the market recovered, I made more in a year from doing nothing than I did working for a year. The markets will go up and down. Don't think about it. Just put the money in.

You're still young and have a long timeline of working ahead of you. True, you're not 24 any more, but you're still very young and you're in a very good position to make a great start. Take a $300 out, add it to the $700 you already have, and start your retirement savings. Replenish your EF with the money you were going to use for your office. At $425/month ($325 rent plus $60 in additional utilities), it would take you less than a month to get back to where you EF was before. And then take some of that office money each month and throw it into your retirement fund. You don't have to throw it all in, but you need to keep putting money in until it's second nature to you. The concept of paying yourself first is just a mental trick, but it's one that works for a lot of people. Throw the rest of the money into debt reduction and if you feel deprived, spend a little of it for fun. Just don't go overboard.

One thing I learned to do is not think about my roth as a way of making money and just unconsciously put money into it. Think of it as a long term investment. I was in the same position as you Gabby (probably still am) and I would look at my investment everyday to see if it went up or down. This pretty much got me to stop investing because the market has been so bad. But after doing a lot of research, I got myself to add money without looking at the performance of my portfolio. I feel more comfortable now with my roth.

I suggest reading and keep reading. Time is on our side and make sure to do research on asset allocation. Once you figure out how much risk you can handle, you can set your asset allocation to match that.

Why are people so crazy for Roth IRAs. People act as if they are piles of free money, They are not.

As for OP - depends on your goals more than anything -- Kind of a personal decision. What opportunities do you have with the money besides a IRA or ROTH IRA.

I wrote and article about Roth IRA's recently on my blog as well - check it out.

I don't think anyone is confusing a Roth IRA for free money, however the future benefits are awesome if you take advantage of it pre-retirement.

It diversifies your full portfolio between taxable and non-taxable accounts.

It allows you to maximize your chances from a numerical stance.

It can only enhance your income streams if you participates in a Roth.

Yes they are. See below.

I did. Your assumptions are invalid. You basically assume that an investor only earns $5K to invest in a tax-sheltered account. That is, in a pre-tax account, the investor puts in $5K and is taxed when he takes the money out. Okay, I can go with that.

Where you go off the rails is in the assumption that when the investor opts to put his money in a Roth, he still has only that original $5K that that he earned. Assuming he's taxed at 25%, he can only put in $3,750. That's your assumption, right? Well, you're wrong. He can actually put in $5K. True, he has to earn $6,667 to be able to put that in, but the fact remains that he can put a full $5K into the account. If he does that, he gets the full $21,609 instead of $16,207. In essence, with a Roth, the investor is forced to save more. And whoever saves more, all other things being equal, earns more. For me, the compounded tax-free earnings of that extra $1,250 each year is free money.

Could he do this with a non-Roth by investing the extra $1,667? No, because that money would be invested in an account that isn't tax-deferred. If you think that high expense ratios decimate your earnings (and they do), you should see what taxes to do them, especially over a 30-year period.