It’s called a Roth IRA. A different kind of investment vehicle you need to know about. You can open one on almost all brookerage platforms. One of the very few things I enjoyed learning about in high school was my economics teacher teaching me about one way he has become a millionaire. Through his Roth IRA
What Is It?
A Roth Ira is an investment account where you can buy stocks and funds just like an individual account. There are some major differences however…
- Maximum contributions are $6,000 per year
- The money you put in is considered “post-tax money.” Money that has been taxed by your income, then contributed to your Roth IRA.
- Once you take the money out at 59.5 years old, you ARE NOT taxed on it.
- At any point in time, though it’s not smart, you can pull out your principle contributions. The gains must stay, or you can take them out with a 10% penalty AND get taxed on top of that.
Why I Have One
Many people will say Roth IRA’s are a waste because you can’t take money out easily, and you can only contribute $6000 a year. While those points are true, I still have one, here is why.
- I’m young and struggle to max out the $6,000 mark.
- I make sure I have money stored away for emergencies, so I dont have to pull my Roth IRA money.
- My account pairs nicely with my long term strategy.
The main part I love about a Roth is the tax free withdraw once you turn 59.5. The gains from comund interest plus tax free, can make you a millionaire.
My Roth IRA Strategy
In my account I buy very conservative and lower return stocks. But there are a few riskier ones. I know these stocks will go up in the long-term, and by a lot when I am 59.5 years old. Compound interest will do the gains for me, so I dont have to worry about picking the absolute best stocks. I contribute $150 every month, this will go up as my income increases over time. Check out my other post on compund interest (https://the-common-trader.com/2021/04/09/compound-interest-the-8th-wonder-of-the-world/).
I have a seperate individual account where I have a riskier strategy that returns more. In this account I also buy & sell more often, actively manage it, and contribute more each month. I use my Roth as a “safe haven” investment.
My Roth Holdings
I hold a lot of different index funds that M1 Finance, provided for me. For the most part, these track the overall market. The individual stocks I have are top 20 biggest companies in the stock market. So they are safe, but return more than the index funds.
I started my account 8 months ago, so my balance is low. I plan to have my principle balance around $2500 by the end of 2021.
Roth IRA’s are a great tool to have in your investment portfolio. I like my approach, it works for my goals. I’m not saying you need to copy my exact formula. But take it into consideration.
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