Another Clueless Beginner Here

[PokerAce]

I just got done figuring out my taxes for 2005. The good news is that I owe significantly less than I was figuring, so I have some extra cash available. The bad news is that in terms of investing, I only know a little - just enough to be dangerous. I do plan on buying some books and learning, I just don't have the time right now.

I need to open an IRA and put the $4,000 allowed for 2005. I'm planning on opening a Vanguard account to do so. I would also like to invest the extra money I have. Right now I have most of my money sitting in the high interest online savings accounts. As I said before, I don't know enough to trust myself with deciding where to put the extra money. Any suggestions would be much appreciated.

I apologize for the newbie post. I hope to eventually learn enough to be able to contribute something useful to this forum.

[ColdCaller]

You might check out Firstrade, which allows you to purchase mutual funds at no cost as well as cheap speculative investing if you care to get into that. Never hurts to have a lot of options in front of you for simple diversification!

[buffett]

After all the benefit you and your programming skillz have shared with the rest of us (thank you again), I hope we can return the favor here.

Personally, I think you're right on track with the Vanguard thing. For people who don't have the three T's (time, temperament, and training) to do investing on their own, I think cheap index mutual funds are a great way to go. If you have extra $ after making your 05 contribution, why not just go ahead and make your 06 contribution, too?

Many years ago, before I trusted myself with my investments, I had 100% of my 401(k) in the Vanguard 500. If I was in that same position today, I'd probably do 100% in the Vanguard Total Stock Market Index.

Or if that's not complicated enough for you, you can try a 75/25 mix of VTSMX with the Vanguard Total Bond Market Index. Scott Burns, a financial writer I respect, refers to this as a Modified Couch Potato Portfolio (the non-modified version is 50/50, but as a young 'un you probably should have more stock exposure). He also has another one that mixes in an international index for a 3-way concoction he calls the Margarita Portfolio.

Or, you could look at some of the posts from jively (our resident index adviser) and see some even-more exotic combination of various indexes.

You've already made great choices so far by investing (compounding is the 8th wonder of the world), using an IRA (defer those taxes), going with indexing (if you can't beat 'em, join 'em), and using Vanguard (low costs). Best wishes in continuing those good choices. Your 60-year old self will be very grateful to you for making them.

PS
Are you eligible for a Roth IRA? If so, you might consider using that instead of a regular one.