No, I’m not part of some hot new internet startup that made me into a paper millionaire overnight. I wish. That would be awesome. I do own some stock though. The problem is I have no idea what to do with it. Sell, hold, buy more? So. Many. Choices.

Back in the fall, I started my current retail job. I wanted to participate in the company’s 401K for the 4% match. Minimum wage sucks, so this seemed like a cool way to get more compensation for the same amount of work. Work smarter, not harder. Right? Then the IRS though decided to crush my soul and stomp out my financial hopes. Any company that offers a 401K must let all employees participate as long as they are 21 years old. If you’re 18, 19, or 20, the company could let you. But mine doesn’t. Yours probably doesn’t either.

It’s BS, but that’s how things work. Even though I’m an infant (by government standards), I was allowed to buy my company’s stock at a 15% discount. Gee, thanks. For the past 9 months, 5% of my pay has been deducted every pay period to buy shares. 5% of minimum wage $hitty pay is not a lot of money. I own 9.369 shares at the moment. At their highest point earlier this year, they were trading for around $20.

If I sold today, I’d lose money. Retail is seasonal – the price usually picks up the closer we get to Christmas. I can wait to sell until then, I guess. But I need to stop my payroll deduction. Enrolling in the first place sounded like a good idea, but I shouldn’t have. Buy something for 15% less than it costs? SIGN ME UP. Except I ignored the part where I didn’t really know anything about trading individual stock or what Etrade charges for selling shares or even what I was investing for. Dumb!

Lesson learned: Don’t buy stuff just because it’s on sale!!!

A long time ago, my grandparents bought me some savings bonds. 15 years have passed since I was gifted them and they’ve sat in a fireproof box ever since then. I thought about redeeming my bonds a few months ago, but decided not to. The total value of the 3 bonds is only around $140 right now. I don’t have any urgent need for that money right now so I’m planning on holding them until they mature. That won’t happen until I’m 34!

I have no idea what my life will look like in 2026, but I can guarantee I’ll lose track of those three pieces of paper by them. Thanks to the power of the Internet, there’s something I can do about that. The US Government actually runs a website where you can covert paper bonds into electronic ones! Cue joke about the government doing something efficient and logical.

The site is www.treasurydirect.gov. You go there and create an account. Then…things get a little unefficeint inefficient. The Fed is paranoid like you wouldn’t believe when it comes to savings bonds. Before you can login you have to wait like 2 weeks for an access card to arrive. By snail mail. Until you get that card, you can’t login. Bummer.

Mine finally arrived today. Once you can, you know, actually access your account the process is surprising straight forward for a government operation. I was asked for my bonds’ serial numbers and issue date. Then I printed out a “conversion manifest” they created for me. I just have to mail my bonds and that piece of paper to the Treasury Department and my bonds will cease to exist in dead tree format.

Keeping bonds in electronic format makes sense to me. I already do paperless billing and online banking, so another username and password isn’t much of a hassle. Bonds make even more sense to digitize because they’re rarely even seen. One interesting/sneaky (depending on your viewpoint) thing though is that upon maturity (when I’m 34) the bonds are automatically redeemed and the interest in reported to the IRS. Uncle Sam is definitely going to get his cut.

Better keeps getting better! Vanguard, the company I use for my Roth IRA, recently did away with their $3,000 minimum deposit requirement for Target Date Retirement funds. That’s more like it! Before the change, the only fund with a lower minimum was the STAR fund at $1,000. The STAR fund is alright, but I like me some options.

I started my IRA with $1,000 in the STAR fund and figured I’d reach the magical 3 grand mark someday down the line. Now my timetable is moving on up. I’ll be moving over to a target date fund shortly. The main reason is risk. I’m young and not concerned with day to day ups and downs, so I’m cool with having most of my money in stocks. By making the switch I’ll be invested in stocks 26% more than I am now. More risk = more return.

If you’re in my age bracket (18-23) the fund you want is called the “Vanguard Target Requirement 2055 Fund“. No, the name’s not exciting but it is descriptive. 2055 is a long way off, but money invested now is gonna be worth a whole lot more when withdrawal time comes.

Target date funds are amazing cuz you don’t have to do any work!* As time passes, the mixture of stocks, bonds, and other investments gets more conservative. When we’re young, having 90% of our money invested in the stock market is fine, but that’s not such a hot idea when you’re 60 and don’t wanna work anymore. When you’re older, you want less stocks and more bonds. Target date funds make that happen automagically.

*While you don’t have to do any work, you should. Checking up on your investments is just smart – you may want to make some adjustments every now and again.

Over the weekend, I attempted to clean out my room. I got most of it looking good, but I subscribe to the “if-you-don’t-know-what-to-do-with-something-stick-it-in-the-closet” philosophy of organizing so I could only do so much. While I was attempting to sort through the mountains of crap in my closet, I came across some United States savings bonds.

These are the details on the 3 bonds I found:

• 1 issued on 08/1992. Current interest rate is 4.0%. Current value is $65.76.
• 1 issued on 01/1996. Current interest rate is 1.42%. Current value is $42.88.
• 1 issued on 12/1996. Current interest rate is 1.42%. Current value is $40.98.

Now I’m wondering if I should go ahead and cash them in or hang on a little longer.

The best use I can think of at the moment would be to pay down my student loan debt. $150 isn’t much in the grand scheme of how much I’ve borrowed, but every payment helps reduce my balance and how much interest I have to pay. One of my loans has a 7.9% interest rate, so turning in the bonds which pay low interest is like an automatic investment return. Booyah for automatic returns!

Of course inflation is also being a b*tch and makes the case to sell even stronger. Two of the bonds aren’t keeping up with inflation, which sucks.

So…I think I need to make a trip to the bank soon. Get these suckers cashed in before the United States goes broke and pay down some debt. Sounds like a good plan to me, but there’s a big chance I’m forgetting something.

Any reason to hang on to these bonds for at least a little longer? Am I missing something big?

Right? Cause I basically did just that. I opened an account at E*TRADE last year for my Roth IRA, but I only made one deposit – the initial one. After that, I let it fall by the wayside. I tried to login to my account a few months ago, but I couldn’t remember my password and was too busy lazy to request a new one.

A few days ago, I received a letter from E*TRADE showing my year end balance and investment return. My total account assets amount to – drumroll please – $57.58. I dropped the ball big time on this one. The problem was I honestly didn’t know what the hell I was doing. I knew I should set up an IRA, but I didn’t know what to do once it was set up. I had read about Target Date Funds; you simply tell whoever holds your investments (E*TRADE in my case) when you want to retire – around 2050 for me – and they pick the right investments so you hopefully retire at the time you want to. Basically, it’s investing for retirement on autopilot.

Yet, E*TRADE doesn’t seem to do this. I looked all over their website and I couldn’t find any way to start investing in a target date fund. So I purchased one share of some index fund that I thought looked good. I told myself I’d come back later and do more research. Guess what didn’t happen?

I don’t want to spend hours analyzing investments. ZZZZZ. I’m not an expert and even the experts aren’t really that good. I want to tell my investment company: “Every month, take this $50 and put it in a fund that will automatically adjust as I get closer to retirement.” Done. Simple. Easy. That’s what I want.

Since E*TRADE apparently doesn’t offer this service (if they do and I’m missing something, let me know), I’m taking my Roth IRA somewhere else. I’ve settled on a place called Vanguard. Their fees are ridiculously low and their investment philosophy has little in common with the “yeah, let’s pick some hot stocks today” you hear on TV. Bottom line: No bullsh*t.

The only catch: I need a minimum of $1,000 to invest with Vanguard. This isn’t unreasonable, but it’s far from the $50 minimum E*TRADE asked for. Once I get that saved up, I’ll be transferring my account.

Opening retirement or savings accounts is great, but make transfers automatic. You can lie to yourself and promise that you’ll send $50 or $100 each month to those accounts, but you won’t. Make it happen without you having to lift a finger.

Although stocks seem to get all the attention on the news, another type of investment, called a bond, is important too.

So What is a Bond?

A bond is like a loan between two parties. Typically, this loan is between a person (you or me) and a company or government. When you buy a bond, you’re loaning money to a company who will pay you back what you loaned plus interest. Bonds typically last 3-30 years, depending on who issues them.

What’s So Great About Bonds?

Bonds are known to be much safer than stock. Bonds are all but guaranteed to be paid back, especially if you own one from a stable government or company.

How Do I Buy One?

Bonds are sold through the same brokerages listed in the previous post. For United States bonds, you can purchase them through TreasuryDirect. There, everything is handled electronically and you don’t have to receive an actual piece of paper representing the bond.

How Do Bonds Make Me Money?

Bonds make you money in the same way a bank or credit card company makes money: through interest. Most bonds pay out interest twice a year. How much you receive will depend on the bond’s interest rate and the value of the bond.

Also, once the bond matures (meaning it’s full value is reached), you can cash it in, getting the original amount of money you paid back.

What’s Not So Great About Bonds

Bonds don’t return as much money as stocks typically do. There’s also always the chance that a company will go bankrupt and won’t be able to pay back the bond. Although bond holders get payment before stockholders if this were to happen. I don’t worry about U.S. government bonds not being repaid since if the United States is ever in the situation of not being able to pay me back, I think we’ll have much bigger problems to worry about.

Overall

While bonds are considered “safe” investments and provide a predictable return, you pay a price for this decreased risk: less money. Holding bonds is fine at any age of course, but it’s definitely wise for those middle aged or nearing retirement to transition from stocks to bonds.

Arguably the most common thing people think of when the word “investing” comes into their minds is stock.

So What is Stock?

Stock is like your own little piece of a company. You buy stock in units called shares. When you buy a share, you give money to the company which can then use it to finance new products or services. When companies sell stock for the first time, it’s called “going public”. This event is a called an IPO or Initial Public Offering. Companies typically only do this once they reach a certain size.

Two Different Types

There are 2 major types of stock: common and preferred.

Common stock allows the shareholder to vote at company meetings, meaning they get a say in how the corporation is run. Common stock holders may also receive payments called dividends. (More on these later)

Preferred stock also allows shareholders to receive dividends, but they do not receive voting rights. The advantage of preferred stock is that they have priority in the event a company goes bankrupt. Common stock holders won’t receive dividends or other payments until after all the preferred stock holders have.

What’s So Great About Stock?

Stock often has one of the best returns of any investment. It’s one of the best places to invest money over long periods of time. Besides the financial benefits, stock allows you to choose which companies to support. You might purchase stock in a company that makes solar panels, but not in one that sells oil, if you believe strongly in green technology.

Where is It Bought and Sold?

Stock wouldn’t make much sense if it was hard to purchase. To solve this problem, something called a stock exchange was created. These organizations bring buyers and sellers together, somewhat like eBay, to create a marketplace. The largest one in the world is called the New York Stock Exchange, commonly abbreviated to NYSE. Others exist such as the NASDAQ, London Stock Exchange, Tokyo Stock Exchange, and many more.

How Do I Buy and Sell Stock?

Although stock is traded in places like New York, (On Wall Street to be specific.) that doesn’t mean you actually have to travel to buy a few shares. That would be really inconvenient, especially back in the day before cars and airplanes.

Instead, stock can be bought and sold through a broker. A broker is a person or company that represents you on the exchange floor. These days, your broker is often just a computer who buys and sells as you click.

Popular Brokers:

• E*Trade
• TD Ameritrade
• Zecco

How Does Stock Make Me Money?

Stock can make you money in the simple form of buying and selling shares. For example, you could buy a share of Apple for $100 and then sell it at a later date when the price goes up, for say $110. Boom, you just made ten dollars!

Note: This is a vastly simplified explanation of what buying and selling shares is like. Constantly buying and selling shares is a tricky business, one best left to the pros. And even they can lose money!

Dividends- when a company makes a profit, they have the option of putting the money back into the business or making payments to shareholders called dividends. A business might say that they’ll pay a dividend of 25 cents per share. If you owned 100 shares, you’d receive $25.00.

These payments are usually made 4 times a year, once every quarter.

What’s Not So Great About Stock

Stock can be very risky. There’s absolutely no guarantee that you’ll make money. There’s actually a chance you’ll  lose everything. Stock is something you buy and hold onto for a long time. Over the long term (10 years or more), the stock market usually returns 8%-10%, but over the short term, the return can be much much less.

Overall

Stock is a vital piece of almost any investor’s portfolio (all of the different investments one holds). This is even more true for young people, since we have the most time to gain from good years and plenty of time to make back what we lose in the bad years.

Now that we’ve talked about what a Roth IRA is, it’s time to set one up. To start an account, you have to first pick a broker (someone who buys and sells investments on your behalf). Luckily, it’s not hard decide if you’re young or broke or both.

Of the following companies that I researched, only one would allow me to open a Roth IRA with no minimum deposit or fees.

• T.Rowe Price
• Fidelity
• Scottrade
• Vanguard
• Zecco
• Charles Schwab
• TD Ameritrade
• E*Trade

The decision was pretty much made for me. While I liked Vanguard’s investment strategy (the company is built on index funds, which have low expenses with good returns), I didn’t want to wait to save up $1000 to go with Vanguard. (Other companies wanted at least $500)

Another plus was E*Trade has cool commercials like this one.

So, to setup the account, all you have to do is download this form. (If you’re over 18, you can open it online here.) It asks for the standard information that you’d give any bank when you open up a new account. Address, Social security number, blah blah blah.

There is one section where it asks what your “investment objective” is. I chose Growth, since I’m willing to take some risks (I have 40-50 years until retirement) but not complete chance like Speculation. For trading, I chose 0-3 per month, although I honestly have no idea how often I’ll trade.

In section 9, “Select Your Account Options”, I chose the E*Trade Financial Extended Insurance Retirement Sweep Deposit Account. This is basically just a saving account where your money hangs out until you invest it. Beside this section, you’ll notice you can choose to receive certain account information through the mail. DO NOT select any of these unless you want to pay a fee to E*Trade. (Hint: You don’t)

Once the form is filled out, put it in an envelope along with a check made out to E*Trade Clearing LLC for any amount. The address is listed on the 1st page, in the upper left hand corner. Mail it.

Seriously, that’s it.

Once E*Trade sets up the account, you’ll be ready to invest.

Have you earned any income in 2009? It could be from the local pizza place, the American Eagle in your mall, or even the cash you received for walking the neighborhood dogs. If you do, there’s a great place to put part of it.

The place is called a Roth IRA. IRA stands for Individual Retirement Account. It’s named after William Roth. What’s so great about it?

What’s awesome is that they allow your money to grow to enormous sums. If you put $2000 a year in a Roth IRA from age 15 until 60 and the market returns 9%, (entirely possible over a period of 45 years by the way) you would have over a million dollars. That’s sick isn’t it? I may be geeky, but that seems really exciting. Even better, you can take this money out when you retire without paying a cent in taxes.

Another bonus for teens: You don’t have to pay income taxes unless you make over $8,950 a year. Since most teens never come close to this, it means that any money you contribute to a Roth IRA will never ever be taxed by the government.

But I don’t have two thousand dollars! What am I going to do?

It doesn’t matter. Open one up anyway. You don’t have to contribute two grand if you can’t or just don’t want to. What’s important is that you open it and put something in. In the future, when you get a “real” job you can start contributing a lot more. But there’s no time like the present and every year you wait, will cost you money. Not just a little money, but a lot of money, as in thousands of dollars.

What’s the Catch?

There aren’t too many disadvantages to a Roth IRA, but keep in mind:

The money you contribute has to be earned. This means you can’t just put in money you got as an allowance. If your parents are really generous though, they can contribute whatever amount you’ve earned and then let you “keep” your money in a savings account or even in cash. You might try to see if they’ll match your contributions. Example: “Mom and Dad, I’ve earned $1000 from mowing lawns this summer. I’d like to keep part of that money to use during the year, but I was wondering if you would contribute $500 if I put in $500.”

Also, you can’t access your earnings until you’re 59-1/2. This shouldn’t be a problem though because the point of this account is to save for retirement. This is not the account you use to save for a car.

You need to have proof you earned your income. This typically means filing a tax return. I know this sounds scary at first, but don’t worry, it’s really easy. I’m planning to write an article on how to file your taxes by the end of February.

If you aren’t 18 yet, you’ll need one of your parents to be the custodian on the account. This is because minors can’t legally enter into financial or contractual agreements by themselves.

Even with these requirements, the Roth IRA is a great way to prepare for your future. You’re young. You have a huge advantage over older people who never opened one. Use it.

Tomorrow, check back for: Where and How Do I Open a Roth IRA?