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Originally posted by Supple Cow
Sorry if this is too elementary, but I searched through other threads and didn't really find anything that tells me what an IRA is. I know that it's for retirement and that I'm not supposed to touch it for years and years. I'm 20 now, and I'll be making a few thousand from my internship this summer to invest in something like this, but I don't really know the difference between an IRA, a CD, a money market account, etc. For instance, are these all funded privately or are there investment opportunities backed by the government (besides government bonds)? Which ones are safer to invest in? What are the time frames involved? The last opportunity I had to learn any of this was my high school economics class, and that wasn't very helpful. Thanks.
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Bank accounts are backed by the US government, up to $100,000 from theft losses. Investment losses you're on your own. I think that might be one of your questions.
If you're in college (sounds like you are), just put it into a money market fund. You'll probably blow it on beer and chicks anyways, and a MMF keeps it fairly liquid, and is low-risk.
I've never been too fond of CDs. They are low-risk, low return, and your money is locked up tight for a while.
Although starting young with an IRA will do wonders (consider how much $2,000, growing tax free/deferred at 8% over 40 years will look like....now think of doing this every year for the first 10 years, stopping at 30, and just letting it sit there.....) it does tie up your money.
Government bonds you can get into and out from fairly easily, especially if you have a bond fund. Watch out, though. When interest rates rise, the market value of bonds plummets.....and considering that the interest rates are near record-lows....you can do the math. Personally, I'd stay away from those unless you buy bonds near maturity and expect to hold them until redemption. Government bonds with tax-free interest won't do you much good, since it sounds like you're in a low tax bracket anyways (college).