by Archie M. Richards, Jr., CFP^®
March 20, 2006

Allen writes, "I have money invested in a Roth IRA. But I have an additional $5,000 I'd like to put into a non-retirement account at Vanguard, invested in stocks but available for short-term emergencies. I'm 24 years old, unmarried, and have a good job. I don't spend a lot. My car is 17 years old, and I rent an apartment. Vanguard's minimum initial amount in a fund is $3,000. With only $5,000, I have to pick one fund. Which one would you choose?

You're not facing emergencies, Allen. Emergencies are major, unexpected expenses. You face major, predictable expenses. As a general rule, you shouldn't invest money in stocks that's likely to be needed within 5 years.

The chances are you'll need a car soon. Why not start there? Buy a good-quality used car. Put $5,000 into it and assume as little debt as possible.

Miracles do happen. You might even get married and need a downpayment for a house, not to mention - yikes - babies!

You're doing great, Allen, but forget about investing the $5,000. You've got a life to lead, probably a good life. It takes money, especially when you're starting out.

Fran writes, "My husband and I are in our 50s. We have joint annual income of $24,000 and credit card debt of $10,000. We wanted to have our credit card loans consolidated but thought there might be catches that would land us in trouble. We need your advice on this. Also, what would be the most attractive investments after we rid ourselves of these debts? And we'd like to purchase a condo. Can we get one for no money down?

Never mind investments and condos, Fran. For you, those are pie-in-the-sky-a-la-mode. You talk about potential trouble in the future. Shoot, you're already in trouble. You have to increase your income and cut your spending.

Look in the yellow pages for Credit & Debt Counseling Services and pick a company to work with. It's your job to make sure there are no catches. If you don't like the people you're talking with, walk out and go elsewhere. Don't pay a penny or sign anything before reading and underlining the small print. Ask a lot of questions, even if they seem stupid. This isn't a high-school class; it's your life.

Throw away your credit cards and visit www.spenders.org to see if Spenders Anonymous offers meetings where you live. You're going to have to change your way of thinking and living, Fran. You can do it, but it'll take time and effort. All the best to you both.

Jerry raises a question concerning my recent column about IRAs and 401k plans. (In archierichards.com, the column is dated 1/23/06.)

You cannot make new IRA contributions if you have no earned income, Jerry. But if you have money in a 401k plan from a previous job, you can set up an IRA now and transfer the 401k assets to it.

When you find another job, you can make new IRA contributions then. But use a different IRA for that purpose. Commingling new contributions in an IRA that holds money from a 401k plan can get you into a pickle later on. Keep the two separate.

Wouldn't it be great if Congress really made income taxes simple?

Dennis writes, "I have a question about my next move in the market. How much do you charge for your advice?"

I just write columns, Dennis. I guess this means you get what you pay for.

But I will tell you this: The word "move" makes me nervous. It's a macho word. "Making a move" is what guys say when they want to engage - if that's what you'd call it - with a woman.

People who talk about making market moves usually trade too much. Each time, they pay the commissions plus the spread between bid and asked prices. Each time, they're exercising investment judgment. This turns out wrong more often than not.

Macho and the market make lousy music together.