Welcome to my Roth IRA blog. This is where I talk about what investments I'm holding in my Roth IRA. I started the IRA in 2004 and have contributed $5,000 ($3,000 last year and $2,000 so far this year). Since I opened the account, I've made some good short-term trades (Taiwan Semiconductor [TSM], Merck [MRK], and Apple Computer [AAPL]) and some bad ones (basically in some iShares ETFs that took back everything I'd made in TSM and AAPL). This past spring I found myself basically even. I chalked it up to experience -- and was grateful I hadn't actually lost any money -- and figured I should learn more about the market before playing around anymore. I've done a fair bit of reading since then. I started this blog to chart my progress and to help others learn from my mistakes.
I chose to trade stocks in my Roth IRA because, first, I have a 401(k) that (in combination with my Social Security) will be adequate for my retirement, at least according to John Hancock. The 401(k) is in mutual funds (40% in the S&P 500, the rest in various sector funds) and I plan to continue contributing and not think about it more than once a quarter or so. The IRA is thus "mad money," and I can take more risks with it. No, I wouldn't want to lose a big chunk of that money, but if I did, it wouldn't kill me.
Since earnings in a Roth IRA are never taxed, I don't have to worry about the tax consequences of my trades, which makes things rather simpler, and because Scottrade won't let me short stocks, buy options, or trade on margin in an IRA, I'm forced to focus on the most basic form of trading until I get the hang of it.
I intend to do medium-term trading. That is, buy a stock, hold it for a few weeks to a year, then sell it. Rarely I may hold a stock only a few days, but I don't intend to day-trade. I may buy ETFs or mutual funds if I think I see a good sector play. I'll try to retain a some semblance of diversification, though I reserve the right to overweight in a sector I like.
My basic "chunk" (i.e. what I invest in a single stock) is $1,000; thus getting in and out of a stock will cost me 1.4% ($7 each for the buy and the sell). In the future I may occasionally buy an additional chunk of a stock if I think its prospects are particularly good, usually after I've held it for at least a month (regardless of whether it's up or down, but more likely if it's down). Ideally I'd want to take a position in stages (the Motley Fool recommends three), but since I only have $1000 total to put in each stock, I think I'd be overpaying commissions if I did that, so I'm just going to put each chunk all in at once. That means five stocks for now. For the next year or two, I plan to keep the chunk size at $1000 and add more stocks; in 2007, perhaps, I'll look at increasing the chunk.
My goal is to consistently make 20% each year after brokerage commissions. I'll be happy, though, to just beat the market.
Posted by kindall at June 29, 2005 11:17 AM