Expert: Paul Henneman - 9/10/2006

Question
Thanks so much for making the time to answer my question. Let me follow up.  I have one child in college right now, because of my low paying job my parent contribution is 0.  I have read Investing for dummies and at least 20 other books. I don't have a car, and I have no desire to get one. I walk and ride my bike everywhere. I have a 403b plan available where I work, but I think that would lower the 3,000 EIC that I receive. I'm thinking about opening a Roth IRA, but even with all the books I've read I am so confused and scared of losing money. I've decided to keep an emergency fund and see if I can live without the child support now so I won't have such a huge shock when that stops.  If I do put all my money in CD's will I have to pay a huge portion for my 8 and 10 year olds college expenses out of that?  My monthly expenses are 575, I earn 800, and I get 600 in child support.  Thanks again.

Answer
Thank you for the follow up!
   I would consider two things: A mutual fund that tracks overall market performance, and CD's.
   The mutual fund will be more risky. It is true that in the short term, you can lose money. There can very well be one, two or even three years of poor performance. But over time such a fund would generate much more income and growth than the CD's would. Vanguard's index fund that tracks the S&P500 is VFINX.
  I agree that you should definitely put aside the child support. This would have two benefits. First, as you say it means that you would not be reliant on that income, so you would be prepared when it stops. Secondly, you could invest that amount and build up a good initial investment into the mutual fund in just a few months.
  Thats it, I would strongly suggest keeping it simple. Save up a thousand or two, and buy into a general index mutual fund such as the Vanguard VFINX fund. You can but this on almost any online trading service, www.FOLIOfn.com and www.Scottrade.com both have very low fees. You can do this through a Roth IRA account as you suggest, and this has very large tax advantages. You can set up the Roth IRA account on either of the two websites I suggested to purchase the fund.
   After you get this starteg, put some into CD's, the best rates I have seen are on www.NetBank.com
   Thats it! Keep adding as much as you can each month as time goes on, this and with the returns and interest that your investments receive, you will see them grow over time. It does take time and patience, you have to stick to it year  after year to really see the benefit down the road. Make it a priority in your life, you can achieve so much with some planning and discipline now.

Please do not hesitate to follow up if I can be of any further service!

Sincerely,
Paul Henneman
ValuEngine Inc
www.ValuEngine.com