Will Roth IRA's Be Safe In This Economy?

**many houseapes** · 07-13-2010, 12:53 PM

I know we're a little late about starting a Roth IRA, but better late than never

Dh has a 401K through work,but I feel that we need to be doing more for retirement.The reason why we are so late & getting started is b/c we haven't had the extra money to do it until now. Dh has had his 401K now for about 3 years....but the problem is this...with the shaky economy, I am worried that we will lose what little is in there if the stock market goes kaput......and it is also making me wonder if starting a Roth IRA would be a safe idea if this were to happen. We are with a credit union and I think that the CU's are safer than the banks, but still....I really want to start the IRA, but at the same time I'm scared to. Any advice will be welcomed

Thanks

**Greebo** · 07-13-2010, 02:38 PM

Do you think McDonalds and Wal*Mart, and Staples and Home Depot and IBM and thousands of other companies are all going to go out of business in the next 25 years, leaving the entire United States without any industry whatsoever, turning us into a 3rd world country?

Because if you invest wisely in quality mutual funds in a Roth, the above would have to happen for your money to not be "safe". Yes, you can lose money investing - but buy wisely and hold has been the reliable investing method for hundreds of years. Get good advice from a reliable, reputable financial planner with the heart of a teacher before you do anything, and never invest in anything you don't understand.

And you know, if the above does happen, money won't be safe ANYWHERE.

**mek42** · 07-13-2010, 02:39 PM

A Roth IRA is the tax favored status of whatever is in the Roth. If you are concerned about another drop in the stock market you could use money market mutual funds or T-bills in your Roth.

If you are concerned about another market drop, you should be ready to use your cash (the two investments I mentioned above are often considered cash equivalents) to invest when the market goes on sale.

You mentioned you are getting started late - how late? Meaning, how long until you want to draw the money?

**Inkstain82** · 07-13-2010, 02:48 PM

In 99% of forseeable situations, an IRA should be fine for a *long-term* investment.

In 90% of the other 1%, nothing is safe.

There aren't too many scenarios where the stock market completely falls apart for a long period, but banks stay okay.

**frugal is fun** · 07-13-2010, 02:52 PM

Exactly! I just had this exact conversation with my financial advisor this morning.

**greekislandgirl** · 07-13-2010, 03:53 PM

When I was nervous about the stock market, I put my Roth contributions into 6 yr CDs that got 6.8% interest, then reevaluated. Not much interest but at the time I it was worth the very low (almost nonexistent) risk. So that's an idea. Although you probably won't find such a good rate anymore.

**many houseapes** · 07-13-2010, 08:36 PM

Originally Posted by mek42

A Roth IRA is the tax favored status of whatever is in the Roth. If you are concerned about another drop in the stock market you could use money market mutual funds or T-bills in your Roth.

If you are concerned about another market drop, you should be ready to use your cash (the two investments I mentioned above are often considered cash equivalents) to invest when the market goes on sale.

You mentioned you are getting started late - how late? Meaning, how long until you want to draw the money?

20-25 yrs from now

**mek42** · 07-13-2010, 10:18 PM

Originally Posted by many houseapes

20-25 yrs from now

That's a long time!!

If investing isn't a hobby for you, go ahead and stick with DR's 25% each growth, bond, international and aggressive growth fund mix. If you're really, really nervous make them each 20% and the best yielding money market mutual fund you have access to.

Make sure that each fund is automatically reinvesting gains and dividends. The bond fund should (hopefully) lose some value soon when (if) the economy starts to improve and interest rates rise. Who knows what will happen with the stock funds.

Here is the thing to keep in mind: when one of your funds starts to lose value DO NOT SELL IT!!!!!!! Instead, if one of your funds has lost value and you are doing 20% in a money market fund, this is the time to use some of the money market fund to buy the fund class that has lost value. Wait until the fund starts to gain value again - it is really, really had to pick tops and bottoms - no need to be greedy and risk being wrong (personal experience - so much personal experience you'd think I was incapable of learning to tie my shoes).

On the other hand, this approach may be too close to needing to make investing a hobby - it is a hobby for me and I honestly don't know how it is for someone to be investing without investing being a hobby - this isn't meant as a slight on anyone except me not being able to see things from other than my own perspective.