Category — Investing

Open up an equity account with a discount broker online. Do it right now. Open up a regular account an IRA account and a Roth IRA Account. This should cost you $0. If your brokerage wants more find another one.

In a regular brokerage account you can buy and sell stocks, mutual funds, index funds, etfs and options. You use after tax dollars and you pay taxes on you profits. You can take the money out any time you want.

In an IRA account you can buy and sell stocks, mutual funds, index funds, etfs and options. You use before tax dollars (this means that when you file your taxes you deduct the amount you put in your IRA account from your income so you don’t pay taxes on it). You pay taxes on your profits but only when you withdraw the funds. You can’t take the money out until retirement age (if you do you pay a penalty.) except for an approved purpose (like buying your first home). You must start taking your money out at age 71(?).

In a Roth IRA account you can buy and sell stocks, mutual funds, index funds, etfs and options. You buy stocks with after tax dollars (it has no immediate effect on you tax returns). You don’t pay taxes on your profits. You’re restricted on when you can and must withdraw the money just like the IRA account.
Roth IRA

Investing is the enterprise of trying to make money with your savings.The amount of money you make is normally quantified as an annual percentage yield of the money invested.

To illustrate, imagine you have a magic box that only opens on New Years Day. This New Years Day you put $100 in the box. Next New Years Day you open the box and there is $110; your invested $100 and your $10 gain. This represents a Yield of 10% (ten percent - 10 per hundred).

There is a handy rule of thumb called the “rule of 72″. Simply put, you divide 72 by your yield and the result is an approximation of how long it will take you to double your money. In this example you divide 72 by 10 and you get 7.2.

So if you keep making a 10% yield, your money will double in 7.2 years.Now here is where it gets interesting.

Let’s say you’re 21 years old and you just graduated from college. Your parents give you a graduation gift of $2000. Your dad tells you that you should put it in your “magic box” to save for Retirement. You want to buy a big ass flat screen TV which with tax, cables and the wall mounting brackets comes to exactly $2000.

So how much did the TV cost? Of course it cost $2000 but what would have happened if you’d put it in your “magic box” and then taken it out when you turned 65.

We’re talking about almost 44 years. 7.2 goes into 44 over 6 times.So your money would have doubles 6 times.So $2000 would become $4000 then $8000 then $16000 then $32000 then $64000 then $128000.

$128,000