Expert: Gina Boykin - 8/27/2008

Question
I am 50 years old and due to various personal issues have no retirement savings at all. I have $5000 ti invest initially and possibly $600/year ongoing after. I know at this stage in my life that will not be enough for any huge fund regardless of how I invest. I make only $22000 per year, have no saving and live pretty much check to check. Trying to decide between an IRA, Mutual Fund, or Money Market Savings account and leaning toward the latter. This because I cannot afford much risk at all cause if I lose this initial $5000 that's it. Id say Money Market over cd because with it I can add money month by month

Answer
Usually, the rule for investing is that if you will need the money within the next 5-10 years, it should be a safe, predictable (and boring) things like savings and CDs.  If you don't need the money in this time frame, it be in stocks, bonds, and other less predictable investments because it has the time to bounce back from any bad economic period.  

So, the answer to this question depends on when you plan to retire.  If you won't use the money until you are in your 70s, you should be just fine investing in a mutual fund.  Even if you chose this route you have many options that are low risk - funds that invest in either securities, bonds, or a mixture of bonds and stocks could give you diversity to avoid major losses but have the chance to get a little better return over the long-term.  For example, there are money market mutual funds that have a little bit higher rate than savings or CDs and don't have much risk at all.  Bond funds are usually designed to provide income as opposed to a higher selling price - these can also have a lower risk of losing money.  The fund should be in a Roth IRA so that you get the benefit of tax-free gains.

Remember that your question does not have an "all or nothing" answer. Why not put the $5,000 in savings or a CD but put the $600/year in a mutual fund.  A CD would be fine for this lum-sum because you won't be adding to it.  You can easily do monthly or quarterly investments in a mutual fund with one of the discount brokerage firms like Fidelity, Ameritrade, or Charles Schwabb.  These companies require as little as $50/month, which is exactly what you're talking about doing.

Whatever you decide, make sure you get an understanding of where you're putting your money.  Don't get intimidated. Ask questions, read before you sign, and read your statements.