In my earlier post, I showed how simple opening an account was. Now, I am ready to fund the account. I have linked my bank account to my Roth IRA and made my deposit for 2005. Call me lazy for not doing it earlier and I’ll tell you why depositing the money earlier is better.
We all know that you cant make any money if you don’t put it somewhere. So, that is why you must deposit the money earlier on in the year. Here is why. Since the Roth IRA works as a compunding account, the money will compound the interest with the investments that you make. So if you deposit it earlier in the year with a lump sum, you could technically make a little more money than depositing it monthly or bi-weekly. Sometimes, you can’t make the lump sum. I suppose depositing money into your account no matter how you do it is better than not doing it all.
Here are some more basic numbers. Remember this is all a hypothetical, so, let’s say you are 25 and you invest $3,000 and deposit that every year for 5 years you have $15,000 (thank god I can do math 
). Let’s also assume the gains have been 10%, on average, every year. and you have about $20K in your account by the age of 30. You let that money sit in your account until the age of 72 you will have a whopping $1.28 million. I know some of you will ask if the dollar will be worth less come that time? No. It’s going to take more than 42 years. I would take a million bucks any way I can get it, especially if it is tax free.
So once this money is cleared through the account I will go through the process of purchasing stock for newbies (like me). And let’s watch this account grow (or shrink for that matter). Currently, I own GOOG, ELN, MSFT, and VFINX. Let’s see how it goes.
Blair Says:
February 6th, 2006 at 5:26 pmVisit Blair
Not that a million isn’t bad, and by all means investing as such is the way for all of us to go. But, look at what a million could buy you 40 years ago compared to now! While the cost is slumping now, housing is a good example, as it is in itself an investment. In 1965 you could buy several huge houses for a mil. Now, that’ll get you one larger house (or a one bedroom on the beach in san diego…hehe) Since the 60’s the value of the dollar has dropped about 10 fold – think about what you could buy for 10 cents… soda, magazines, a couple candy bars etc. Now, each of these things will cost you at least a buck if not more. And, if you think that the cost of things have been pretty much steady in the past 20 years… think about telephone calls, tolls, stamps… all of which were a quarter or less when we were kids and are now approaching a fitty cent piece each!
I’m not arguing with you, just complaining about damn inflation and it taking a chunk out of our retirement funds. Now, the good news is that the % returns you get on your investment are larger than the cost of living increase per year. Therefore, while a mil may not be what it once was, you still made a nice bit o green on your investments. That, and as the dollar slumps the more $ you can put per year in the account, garnering you a bigger final dollar amount.
Perry Says:
February 6th, 2006 at 8:13 pmVisit Perry
I completely agree with that. But we have to look out for no social security when we retire. I honestly think we won’t have it. And some of us will still be paying off school debt! Our generation has far outpaced our parents in debt readiness. So therefore our saving habits have to change. But a million tax free will help! Combine that with a 401(k) and we are golden.
Blair Says:
February 7th, 2006 at 4:35 pmVisit Blair
Double Tru my friend… any free money is good money!