For three years now I’ve had a crazy love affair with my Roth IRA. It’s consistently been my favorite investment vehicle for serious wealth building. The long term tax benefit and the wonders of compound interest will surely give all PF lovers a warm fuzzy feeling inside. At least, it use to give me that feeling. I’m not so sure that’s the case for me this year.
Thus far, I’ve put a whopping zero dollars in to my Roth IRA. Why the lack of contribution you ask? A few reasons…
I punched debt in the face, literally. I started 2010 off with $16,193 of student loan debt. By June, I had that sucker paid in full. That means, for the first half of 2010, I was putting the majority of my money towards debt and not in to savings. Less money in savings equals less money to contribute to a Roth IRA
I was also preparing for a major life event, getting married! I was responsible for about $5,000 of wedding costs. Saving for the MOST IMPORTANT DAY OF MY LIFE definitely put a damper on having the liquidity to contribute to my Roth IRA. Don’t get me wrong though, it was worth it
Punching debt and saving for a wedding is all fine and dandy, but when it comes to the REAL reason I’ve avoided my Roth IRA like plague, I’ve got to fess up… I’m a big wussy! Seriously, I don’t know what it is, but for the first time ever, I’ve thought NOT investing in my Roth might be a smarter option THAN investing.
I think I’m particularly freaked out because…
1) We only have $20,000 in the bank, $10K of which is earmarked for our E-fund. If I made the maximum 2010 contribution of $5,000, we’d be left with about $5K of discretionary savings. That’s definitely on the low side if you ask me. I’d be much more comfortable if we had about $30K total in the bank.
2) Lackluster performance over the last three years. I started contributing to my Roth IRA in 2007, immediately after graduating college. While I know compound interest favors early investing, I’m a little upset by my gains. I know, I know, three years isn’t enough time to let my Roth IRA work it’s magic, but seeing a negative ROI month after month starts to wear on me. Bah humbug.
3) The stock market is up like 16% since July. I don’t like the idea of buying when the markets are at one of their highest points in the last two years. I’m just not convinced we’ve seen all the potential drama. Many say a second recession is inevitable. If I had the liquidity to buy in 8 months ago (when the markets were going down), life would be sweet. Buffet said it best “Buy when everyone else is selling” Or in other words, DON’T buy when everyone else is buying…like right now!
I have until April 2011 to decide what I should do with this $5,000. I seriously don’t know what I’m going to do and would love your input.
Anyone else that hasn’t yet made your 2010 Roth contributions a little unsure of what to do? I think what I really need is some encouragement from those that advocate FOR investing. I know any short term loss will be followed by a long term gain, I’m just a little freaked out right now. How do you stick to your goals when you get a little uneasy?