What's the point of an IRA?

[DaveSimmons]

Roth IRA: money grows tax free, no taxes on all your gains. You put in $3K of after-tax money, you take out $12K in 20 years, you don't pay tax on the $9K like you would with a savings account.

Traditional IRA (not available if you have a company 401k): You put in $3K, you save $1K on your taxes now, but you do have to pay tax on the $12K in 20 years.

Both are clearly better than a savings account where you get no tax savings.

What to buy? If you only invest in one thing for retirement, I recommend www.Vanguard.com and their VFINX S&P500 mutual fund. Historically over decades the S&P500 has grown about 10%/year and Vanguard's fund grows slightly more than others because the fund management fee is lower.

 

[oboeguy]

The only reason is for the tax shelter. You can buy and hold anything, whether as part of IRA or not, but IRAs can save you a ridiculous amount of money in taxes. A Roth IRA grows TAX-FREE. If you can't understand how huge that is, well, you'll probably die penniless and friendless.

 

[CPA]

Originally posted by: LordJezo
But what are you supposed to invest an IRA in?

Individual stocks are crap shoot and you never know what will happen to any company on any day. I've tried out individual stocks and some mutual funds, but overall everything just keeps losing money.

Are there no safe investments?

LJ, you sound like your investing for a quick gain. IRA's are not meant for that, they are meant for long term investing. And history shows, even recent history, that mutual funds and stocks return a much better rate than a savings account.