How To Invest In A Roth IRA - Investing For Beginners - YouTube

Do you want to know how much money I plan to have in my Roth IRA in 30 years

over five hundred

Thousand dollars, it's not because I'm smarter than you or anything like that

The only reason is because I actually invest in my Roth IRA every single year

But don't worry because I want you to have as much money as I will or hopefully even more so in this video

I'm gonna pull back the currents to go over what you need to know and the things you need to think through

before you start investing in a Roth IRA

If you don't think about these things now

then you'll just end up opening a Roth IRA account and possibly wasting money investing in something just because you didn't know I'll

specifically touch on who can invest in a Roth IRA you were investment options choosing where to invest your Roth IRA and also,

Thinking through the types of allocation. You may want to choose because I know this video might get a little bit long

I'll have a timestamp down in the comments for you to skip around for whatever you're looking for

You can also check out the description for playlists on different personal finance topics

Check it out

When you're ready

Please Hulk smash that thumbs up button and leave a comment down below letting me know if you have or have not started

investing in your Roth IRA

you can also leave any other investment questions when it comes to Roth IRA or

general investing questions as well if you would like if you need a little general refresher on what a Roth IRA is then I made

A video about that I will throw the link in the description for you to check out first off

you need to know that anyone who has a job that has an earned income that is taxed is

Able to invest in a Roth IRA. Yes

This even means a 16 year old can invest in a Roth IRA as long as he or she has a job

This also means that you can and in my opinion should invest in an IRA

Even if you have a 401 K through your current job before we get into it

I want to mention that I am NOT giving you investment advice at all. These are my thoughts my opinions

This is for informational purposes only. Please contact a professional if you have any further questions, that's my disclaimer

What most people get stuck on is what in the heck should they be investing in now?

I agree that this can be a little bit overwhelming there are so so

Many options that we kind of get decision fatigue and end up not investing in a Roth IRA at all

I am NOT going to tell you exactly what investing but I'll lay out some of the more popular

Options and give you my personal opinion on the ones that I prefer once again

I am not telling you what to do with your money do any additional research that you need to make a decision that aligns with

your situation in a Roth IRA

You can invest in things from real estate investment trusts, which are called REITs

Sometimes a single stock to target-date funds to index funds to bonds and all kinds of other

Alternative investments like that. The first auction we'll go over is investing in single stocks

This is one. You're probably more familiar

With because it's where you buy a share of a single company while you can't make money investing in one company

You're at a higher risk of losing money, since we're putting all of your money into one company

It's like having a bag with one egg in it then dropping that bag on the ground

There is a higher likelihood that one egg is gonna break because it's the only one in the back you can decide to spread out

Your risk by buying shares of multiple stocks from any of the thousands of companies that are traded on the stock market

This would be like putting multiple eggs in a bag if you drop that bag

then your odds of breaking all of the eggs would greatly

Decrease, but the problem with investing in single stocks in your auth IRA

Is that out of the thousands and thousands of companies traded on the stock market?

How do you know which ones are winners and how you know, which ones are losers?

I agree that there are different ways to evaluate a company to decide if you should buy or not

But it's not as easy as it sounds and it takes quite a bit of time to even come close

To being good at it. So while you can't invest in single stocks and a lot of people make money from doing this

it's a lot more risky for someone who isn't interested in spending the time to evaluate all of those different companies another investment option for

Your Roth IRA could be a target date retirement fund

These are extremely popular within a lot of companies sponsor 401ks because they are super

Super simple to invest in just like a company sponsor 401k

You do have the ability to invest in a target date fund through your Roth IRA

The fund you choose is all based on the year

You plan to retire a target date fund holds many different investments to spread your risk among many different things

I'll walk you through an example in a minute the allocation of how your money is invested is based on the date you plant or

Hire these funds basically handle the management of how your money is invested

So it's less that you kind of have to worry about on a day-to-day basis

For example Vanguard lists these target date funds like this

target retirement

Then they year that you plan to retire you'll notice that these are in increments of five years because if you are within five years

of retiring

Vanguard is assuming your strategy isn't going to change very much looking at the investments within the Vanguard target retirement

2065 fund

VLX vx you'll see that the majority of the fund is invested in different stock market index funds will talk about index funds in a

Minute since a person investing in this fund isn't planning to retire for another forty six years

The fund manager has less money invested

Into less risky bonds ten percent to be exact the further you are from retirement

The more riskier investments can be so that you can capitalize on the upside of the stock

Morgan over the long term to grow your money

investing for the long term also gives you the ability to make up for any of those years that the stock market is down the

market generally rises over the long run over 36 years from 1985 to 2015 the S&P 500 was up to

27 of those years, which means it was only down nine of those 36 years

So it was basically up 75 percent of the time next we have index funds specifically

Low-cost index funds I'll be straight up with you and tell you that these are probably my favorite

Investment be hope vehicles for my Roth IRA

Index funds are funds that hold many different single stocks

The goal of an index fund is usually to match another index within the stock market

Probably the most famous and most popular index to try to mimic is the S&P

500 for example Vanguard total stock market index fund VT sa X holds over

3400 different stocks and different amounts within each stock on their website

They gave you a breakdown of the ten largest holdings for this fund

And also what percentage of the fund is invested in two different sectors

so the top ten investments are spread among many of the largest companies in the world from Microsoft to Apple to Amazon to

ExxonMobil financial services technology health and

Consumer Services are some of the largest sectors that the VTS ax fund

Invests in once again the goal of an index fund like VTS ax is to mimic what the total stock market is doing

VTS ax does this by

Investing in all of the companies that are in the S&P 500 index and then some because they're essentially investing in over

3,400 companies as we know over the long run the stock market has gone up

This funds goal is to help you benefit from the overall rise in the stock market

so investing in a total stock market index fund like VTS ax

vfi ax or there ATF's which are a vti and vo o

Gives you a good chance of a return that is about the same as the total stock market

Over the long run the feast for index funds are usually cheaper because it's not being actively managed by a fund manager

One thing to pay attention to is that some index funds will hold very little or even zero bonds in their portfolio

So if you're managing your investments on your own

Then you'll kind of need to think about how much you also want to invest in bonds based on when you plan to retire

We'll cover more about that. Once we get into the allocation part later in this video now

We have mutual funds on the surface some mutual funds may look like a low-cost index fund

But the big difference is that most mutual funds are actively managed by a fund manager

Just a heads up that some people will refer to a low-cost index fund as a mutual fund for the purposes of not

Confusing you in this video think of a mutual fund and an index fund as two separate things

mutual funds are made up of many many different investments the type of

investments each mutual funds fund holds is

based on what the fund manager chooses to buy and sell the cost of owning shares or the expense ratio in a mutual fund is

Usually high because of the many people working for that particular fund like the fund manager and the people who work under him or her

to decide which switch stocks to buy and sell because the buying and selling of investments is up to the fund manager you were basically

Betting that that fund manager knows how to pick investments that will beat the stock market and give you a higher return

On your investment there have been many different studies that show that over the long term

Fund managers aren't that good at guessing what to buy I'm not telling you not to invest in mutual funds

but I'm just saying that I never would because of the high fees associated with most of them and the fact that the odds of

That fund manager beating the market is extremely slim so slim that the famous warren buffett once been a fund manager

1 million dollars on it the fund manager was able to choose five mutual funds and bet that one of those five funds

Would beat the performance of the S&P 500 or the 500 largest

Publicly traded companies just a reminder back to our index fun to talk

vo o that low-cost index funds fund

Matches the S&P 500 and they invest in everything that the SP 500 invests in this bet lasted ten years in the SP

outperformed every single one of those five funds that that fund manager chose

Which is another reason that I like low-cost total stock market index funds like VTS ax vti

Vo oh, and I forget what the other one is. I'll put it on the screen lastly

You can invest in bonds within your Roth IRA now bonds are a lot less volatile

So their price generally isn't going to fluctuate as much as any of the other investment options

That I mentioned before we'll go more into using bonds within your Roth IRA in the allocation

Section of this video knowing exactly where to invest. Your Roth IRA is not as difficult as it might sound

There's so many different places for you to choose from that

I'm only going to lay out a few of them for you

Each platform has its pros and cons

based on your level of knowledge at this point in time while the more important part of this whole thing is

What you invest in choosing a platform is going to help you decide which investment options that you have

I do not want this decision to hold you up from funding your Roth IRA with at least something as soon as possible

Keep in mind that you can open and fund a Roth IRA with multiple companies at once as long as you don't exceed that

Yearly maximum that you're allowed either

$6,000 if you're single or

12,000 if you were married filing jointly, then you're good to go

for example, if you decide to invest one thousand dollars this year in a Roth IRA through

Then realize that you like the investment options that m1 finance offers just a little bit better

then you can turn around it and open a Roth IRA with m1 finance and start funding that account with up to

$5,000

5,000 more dollars for the current year because one thousand plus five thousand equals six thousand dollars the first option

I want to mention are Robo advisors in my opinion the three best companies in this space our betterment

Wealth front and m1 Finance which is kind of like a hybrid

Robo advisor with the Robo advisor like betterment and wealthfront you basically pick your goals and they choose how to

Invest your money based on these goals. They'll usually invest your money into low-cost index funds

Like we said before are really good like the ones that Vanguard offers

I

Love these options for people who just kind of want to throw their money in every single month and let someone else handle the investing

For a very reasonable fee and one finance is probably my favorite investment platform out of these three options

It's the main one that I've been starting to use with all of my Roth IRA money

I'll throw a link in the description for you to open an account with m1 finance or you can watch for the review that I

Did on m1 finance I'll throw the link in the description to that video

M1 finance is kind of like a hybrid

Robo-advisor for many different reasons that I don't really have time to get into in this video

Let me know in the comments below if you want me to make a more detailed video

About how to actually invest with m1 finance next your option would be to invest through one of the larger

Financial services companies these would be companies like Vanguard which I love fidelity and Charles Schwab

These are all great places to invest your Roth IRA money

I like all of these options for hands-on investors and even passive investors as well

Even though you can invest these companies more passively to get started and get things set up

you'll need to at least have a little bit of knowledge when it comes to investing so that you know what to look for if

You want me to make a video to help you out more with this?

Leave a comment down below and let me know next we have investment advisors

now you have to be

Really really careful with who you're working with

If you choose to have an advisor help you there's different types of investment advisors like brokers or even insurance

Agents you want to avoid people because they basically make a commission on what that gets you to invest in

This is problematic because their investment

recommendations could be ones that benefit them more than it benefits you what's even more messed up is that this horrible practice is

Completely legal if you really really want a financial adviser then make sure that he or she is a fiduciary

And they you're always working with you as a fiduciary

These types of advisors are legally

Required to keep your best interest in mind when advising you what to invest in the brokers and insurance

Agent people are not which becomes a huge huge

Conflict of interest since they are usually pushing investment products on you with insanely high fees because they get some sort of a lucrative

Kickback the last area you need to know about when it comes to your Roth IRA is what you want your asset allocation

To be based on different asset classes like the ones that we talked about earlier in this video for the sake of simplicity

think of it like this out of

100 percent what percentage of your money do you want?

Invested in things that could grow your money and what percentage you want invested in bonds

Which are a lot less risky and a little bit more stable

for example someone who is younger that doesn't plan on needing their retirement money for another we'll say 40 years might choose a

95 5 allocation 95 percent of their investments are in things that have

have a higher potential to grow like single stocks index funds REITs and things like that and

5% of their money is in bonds

Which like we said is a little bit less risky and a little bit more stable

You could also have a person who is five years from retirement that has enough in their retirement

portfolio who wants their money to have the potential to kind of grow a little bit and

still be safe at the same time this person might choose a

60/40 split

60% of their money is investments that have that potential to grow and

40% of their money are in is in is in bonds one strategy some people use to determine their allocation is by taking

110 minus your age and that's how much money you should have in assets that could grow

so if you were 40 years old and you wanted to use that logic and you would take

110 minus 40 which equals seven this line of thinking would say to invest

70% of your money into things like single stocks index funds REITs, etc

And 30 percent of that money into bonds one of the main problems with this strategy is that everyone is in different financial?

situations at any given age for example

if you and I were both 40 years old, and we each wanted to have 1.5 million dollars in our

portfolio by the age of 60 you have 1 million a 1 million dollar portfolio right now, and I only have

$100,000 in my portfolio then do you think our investment allocations would look exactly the same?

Probably not

I would most likely need to be investing more

Aggressively which means I would have more money in growth assets and less and more stable

Investments like bonds your asset allocation

Needs to be based on where you are today and where you need to be by the time you want to start withdrawing that money

for retirement

So it has to be based on your specific needs your specific goals how much you are willing and able to save and invest

every year and when you'll need that money, this is where a fiduciary

Financial adviser would come into play

Especially if you feel like you're way behind when it comes to your retirement investments now

I know a lot about personal finance and I feel very comfortable and confident with my investment decisions and strategy

But I can tell you that once I'm about 50 55, maybe 60. I'll meet with a fiduciary

Financial adviser not because I'm afraid I've made any huge mistakes

But just because it will be beneficial

to have another set of eyes and kind of get a different perspective on what I should be doing with my

Portfolio at that point in time since I'll be so much closer to needing that money

I look at it as hiring a teammate or a coach if you will

So while I'd love to tell you what your allocation should be I'm not going to because I don't know your specific situation

For me I can tell you that I won't need any of my retirement money for another 30 plus years

So I am heavily invested in assets that have a higher upside of growing my current split is

95% in growth investments kind of like low-cost index funds and 5% in bonds now

I might eventually go to a 90/10 split but for now

I am good with a 95 5 split. So that's what I'm sticking with another

My split is 95 5 is because I'm pretty financially stable. It's only this way because I am debt-free

I have a large emergency fund I have time on my side and I am maxing out all of my

retirement accounts every single year check out the links in the description for different playlists and

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