Getting Started with a Roth IRA - Save for Your Financial Security
Saving and investing are the cornerstones of your future financial security. A twenty-year old who saves one-hundred dollars each month and invests that money at a six percent rate of return for 40 years would have $199,149.07. After 50 years the amount accumulated would be $378,719.11. The more you save and invest, the more money you'll have in the future. Once you get into the habit of regularly saving a portion of your income, saving becomes easy and fun. See Recurring Investment Calculator - Watch Your Money Grow.
A Roth IRA is an ideal way to accumulate money for your retirement. You can deposit money into your Roth IRA and then invest it. With a Roth IRA you never pay taxes on any gains that you make from your investments. Depending on your tax bracket, this provision can save you thousands and thousands of dollars when you withdrawal money. A Roth IRA is intended solely for retirement-savings. The law lets you can begin to withdrawal money from it at age fifty nine and one half. But you'll pay severe penalties if you take out money before that age.
There are many ways to invest money - stocks and bonds are very popular. I (RAH) prefer stocks because they offer potential high returns and there are thousands of stocks available. Companies offer stocks as a way for people to participate in the growth of the company. When you buy a stock, you are betting that the company succeeds as a business. If that happens, the price of the stock will increase over time. Some stocks can appreciate to unbelievable amounts while others can decrease in value and even go to zero. So buying stocks is not a sure thing - you can lose money. The purpose of owning stocks is to sell at a higher price than your purchase price.
Dividend-paying stocks such as Colgate-Palmolive (toothpaste) and Coca-Cola (soda) represent conservative long-term investments. These stocks pay a dividend, which is cash paid to shareholders. For example, Colgate pays $1.36 each year for each share owned. Dividends are a gift to investors. You can keep the cash or buy additional shares through dividend reinvestment. I recommend dividend reinvestment because it's a easy way to buy more shares without putting out any new money.
For more about dividend stocks see Own Dividend-Paying Stocks In Your Retirement Portfolio.
An easy way to ensure that you invest regularly is to establish an automatic transfer of money from a checking or savings account to your Roth IRA. After you fill out the required form that specifies the amount and date of the transfers, they occur automatically. Try to get every aspect of your savings and investing automated - that way saving and investing happens each month. Be on auto pilot.
Finally, saving and investing is fun; watching your investments grow is exciting. Begin as soon as possible.