(Financial) Growth

By , April 12, 2008 9:02 pm

So I just opened a Roth IRA (a retirement account which is taxed now, but then is not taxed when I take the money out after I’m 60). Specifically, after reading blog posts like this and being reminded of the awesome power of compound interest, I realized that I very much would like money to retire on and can afford to put a little bit away every month.

I’ve had an ING Direct savings account for a couple years,  and have been really happy with it, so I decided to take a look at their IRA mutual funds. I ended up splitting my initial investment ($250) and monthly automatic investment ($50/month) evenly between a general domestic large-company index fund (in theory, lower risk than just straight stock purchases, and moderate-but-steady reward) and a global science and technology fund (in theory, higher risk and higher long-term reward). Idea is that if I get an annual return of 10% (optimistic but historically reasonable for a 40-year investment) and invest just that $50/month (so $600/year or about $24,000 over the next 40 years) it’ll be worth $300,000+ when I’m 63. If I can bump that up to $2000 a year (about $166 a month or about $80,000 over the next 40 years) it’ll be worth over one million dollars by the time I retire.What I’m hoping to do is continue to split about 10% (and eventually more like 15% or 20%) between a retirement account like this IRA and my personal savings/investments. Right now, “personal savings/investment” just means my ING savings account (~3% interest right now) but hopefully, as I have more money, I’ll be able to split that category further into a savings account and some index funds or the like.

So, over the next couple years, I’m hoping to split 10-20% of my income into two major categories, with sub-categories:

  1. Personal savings and investments
    1. Savings/bonds/CDs/etc (low risk/reward; right now, all I have)
    2. Index funds/stocks/etc (high risk/reward; hopefully adding these over the next couple years)
  2. Retirement savings and investments
    1. Savings/bonds/CDs/etc (low risk/reward; hopefully adding these over the next couple years)
    2. Index funds/stocks/etc (high risk/reward; right now only have theses)

I’m pretty psyched, in large part because I’m privileged by having zero debt. My parents were able to take on my college costs, I am able to pay off my credit cards 100% right now, I have health insurance, 95% of which is paid for by my work, I have no kids, no car payments, etc, etc, etc. That means I’m in the last spot most people usually start thinking about retirement or investing, but the perfect spot to actually do it and take advantage of that beautiful wonder, compound interest.

-R

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