Imparting some financial advice...lesson one and two.

Ok. After talking to a friend who had no idea what a Roth IRA even was..I figured I ought to write about some sound financial advice. Now, technically, you cannot make blanket statements..so..I'll try to be as general as possible, not knowing anyones specific situation. Also, I realize only about 5 people might read this..but even if one of you actually follows up on it, or begins thinking more about your financial future..then I have achieved my goal as a licensed financial advisor.

Lesson 1. The banks. Do not open a savings account at the bank!
Here is why...You put in your birthday money from grandma at the bank, and that $100 earns a paltry 1% interest (or thereabouts) at the bank. Inflation is closer to 3.5%..so after a year or whatever, that 100 dollars isnt worth 100 dollars anymore. Sure, you made a buck of interest, but the 100 bucks today cant buy 100 bucks worth of merchandise a year later..it should be $103.50 or so..hence, your 100 bucks is technically losing money, the day you deposit it at the bank.
Banks arent stupid. They take your 100 dollars and invest it in mutual funds and earn 8%, 10%, 20%..etc. They pass onto you, the sucker, the 1%. What you should do, is cut out the middle-man...the bank. Invest directly into mutual funds. Now..that is riskier as a general rule. and people love the "safety" of banks. But dont fall for it!
There are some safer, more conservative ways to invest..some federal bonds for example, where you are guaranteed certain percentages..etc. There are also some really appealing looking mutual funds (usually they invrest in technology, or natural resources), some that are earning an average of 8% or 10% or more over a long period of time. But if you really want to have the liquidity of a savings account, I at least would take a look at those ING Orange Savings accounts . They earn about 2.5% interest, they are free and require no minimum balance and they transfer money to and from your checking account (and I own one myself).

A note on mutual funds. They are actually very liquid. If you have a certain amount of money in mutual funds, and you need it for whatever reason, you can call up your financial services company (Merril Lynch, Charles Schwab, Prudential Financial, Vanguard, T Rowe Price..etc) and have them sell of some or all of your funds and have a check in your hands in about a week.

Lesson 2. The Roth IRA. Again, in financial advising, it is unethical to make a blanket statement to people about advising. An advisor can technically be sued, lose his/her license..etc for imparting these types of statements. But if there ever is a financial investment that could be advised to just about anyone, its the Roth IRA. There is just about no reason not to get one, and you can open one for as little as $50 a month in most situations.

Roth IRAs and Traditional IRAs are designed to be long-term, tax-advantaged retirement accounts for individuals. Investors can contribute up to $3,000 of their earned income (or $3,500 for investors over age 50 in 2004) and up tp $4,000 (or $4,500 for those over age 50) for 2005. IRA contribution limits increase through 2008.

The two types of IRAs differ in significant ways. Roth IRAs have distinct eligibility requirements. In order to make contributions to a Roth IRA, you must have earned income in the year you wish to establish or add to the account, and your income cannot exceed certain limits. Roth IRAs are available to anyone, including those older than 70½, meeting these conditions. Contributions to a Roth IRA for a specific tax year must be made by that year's tax filing deadline, not including extensions. As you consider contributing to a Roth IRA, keep in mind that you may split your contributions among various IRAs, but the total annual contributions to all IRAs (not including your contributions to SIMPLE IRAs and employer contributions to SEP-IRAs) for any individual must not exceed the annual limit.

There are some limitations on who can contribute and how you can get your money from your Roth. There are certain income restrictions on contributions. Regarding withdrawls from the Roth, earnings are distributed tax-free if:
You have had a Roth IRA for five calendar years AND
You are at least 59½, you are using the earnings for a first-time home purchase (lifetime limit of $10,000), you are permanently disabled, or you are deceased.

Roth IRAs are NOT taxed at the time of withdrawl. Let me explain this a bit better. Most people have their checking account, maybe a savings account and hopefully their 401k. And thats what they think will enable them to retire. The problem with this theory is, at the time of retirement, they have to pay taxes on their 401k..and therefore, a nice nest egg of 1 million dollars (example), is going to be seriously cut down to size due to Uncle Sam. You want to have multiple pots to withdraw your money from at the time of retirement. Some from pre-tax money (like a 401k), some after-tax money (like a Roth).

Now again, you can open a Roth at your local bank. You can also have a Roth through any number of financial institutions. My wife and I have ours at one such institution. This is possibly not the best idea anymore, since we pay a fee of $35 a year to have the Roth there. Of course, when I worked there, that fee was waived... and since at an institution like that, like Charles Schwab or Prudential, you can invest your $50 a month into any number of mutual funds..over 14,000 (a nice perk). The problem, is that those funds are LOAD funds..ie..they cost a small amount each year to have that flexibility. However, if you open up your Roth through a company like Vanguard or T Rowe Price, you would be wise. These are what are called NO-LOAD funds..ie..no annual fee. Those 2 companies are two of the larger ones, and have a good assortment of funds to choose from to invest your hard earned money.

On a basic level, you want to do a couple things when choosing funds.

1. Make sure you diversify. Do not place all your eggs into one basket. Again, please diversify! You may do ok without this step..but its better safe than sorry.

2. Try to find funds that have done well over a long period of time. Obviously, your advisor can help you with this..but its good to get a little familiar with where your money is going. Some companies will tease you with inflated numbers because they earned a good rate during the dot-com booms..so go back 10 or even 20 years (instead of 3 or 5), and see if they have performed well..if you can average 8% or more over 10 years, thats a good place to start.
you can look up funds on morningstar.com for example.

3. A smart way to go, is to find a family of funds..like American funds, or Oppenheimer funds..etc..and to stick within that family. Personally, I havent followed that step as much as i should, because I have found some select funds in several families I like..but its a wise choice..for the long haul. Usually you can switch your money within a family of funds at little or no cost.

If you are interested, I'd be more than happy to share with you some of the funds I have invested in..as many of them have performed quite well, even when the market has taken a turn for the worse.

You work hard for your money. Let the money work harder for you!