[manasecret]

Originally Posted by Professor S

1) Equities are stocks. Equities are the more risky in the short term, and have no guarantee of profit, even though they avereage about 8% a year in the long term. An equity fund is also an aggressive fund.

For some reason the meaning of 'equity' in my mind doesn't associate with stocks. But if that is the accepted nomenclature, then ok. By equity fund, do you mean a mutual fund that is based in stocks?

2) Not all investments like Roth IRA's and 401k's are based in stocks. All stable funds and money markets are based in bonds and other safer venues, they guarantee return on the investment, but the return is far lower. This is why they are great for those who will be retiring shortly as all they do is fight off inflation and you have no risk of loss.

So the idea for someone young like me (24) would be to put the majority of my money into stocks. Do you count stock market index funds as equity? From what I've read, index funds give me the opportunity of investing in aggressive equities without worrying about two things, 1. Having to know a lot about the stocks I'm choosing, and 2. The fact that any individual stock I choose may go under. Do you agree with buying index funds?

If you don't mind disclosing, what percentage do you personally have in equity over the more stable bonds?

3) By redistributing investments, I mean moving from more aggressive/high yield funds to guaranteed/low yield fund as you get closer to retirement. If you stay in an aggressive/equity based investment plan close to retirement, you are in danger of losing a lot of money and with retirement approaching, the likelihood is you'll not make that money back before you retire. When you decide to move you're money from aggressive to stable, you want to make sure the stick/equity markets are high, so that you are making the most of your investment before moving it into a guaranteed/low interest retirement account.

Okay, so you mean a few decades from now when I'm closer to retirement I should move my money to more conservative funds, but only when the market is doing well. For example, if I was the age of 50 now and was looking to retire in the next few years, right now with the market the way it is would not be a good time to move my investments over.

4) Remember the difference bewteen a paper and realized loss when you invest. I've lost about $10,000 in my 401k since the market started going nuts, but that loss is a PAPER LOSS. Meaning: My investment has been devalued on paper, but since I have not cashed out, I can still make that money back when the market corrects and advances in the future. If I were to freak out and bail now, that would be a REALIZED LOSS, and I have no chance of earning that money back.

Are you worried at all? Do you think the market will return to its initial highs again?

5) Tax deferred means that you are NOT taxed on the money you put in, but you are taxed as you take it out. This is tax deferred. Its deferred until later, and you are only taxed on what you use, not the balance. My knowledge is more based in 401k's, so I'm not sure if Roth IRA's tax now or later.

Ah, ok. Roth IRAs work the opposite way. You can only put taxed earned income into the Roth IRA, but any earned money in the Roth is tax-free, even when you cash out in retirement. Also, since the money you put in was already taxed, you can take out your contributions at any time with no penalty. (However, taking out earnings early does incur a penalty along with paying taxes on the income.) You can also take out I think $10,000 of earnings penalty-free to pay for your first house, and similarly for your kids' college tuition.

Moral of the story is: This is a great time for young people to invest in agressive/equity funds, as you will be getting stocks at a devalued price and when they correct you will make out huge.

So what does your portfolio generally look like? Do you like to choose and pick specific stocks or do you stick to equity funds?