<p>if you put money in a roth ira, can you still invest that money. or is it frozen assets?</p>
<p>no it is not frozen money. it's an investment account like any other. you can invest in most anything, provided you meet the minimum roth ira contribution if it's a mutual fund. but yeah, once you buy something and then later sell it, there's a 3 day hold on your money. other than that it's just like an investment acct.</p>
<p>If the OP knew for sure that his time horizon would be five years and no more, the suitable place to invest would be bonds (specifically, a good short-to-medium-term bond mutual fund; never buy individual bonds unless you know what you're doing). His tolerance for risk in this case would be unrelated to his age, as he would not be saving for a retirement that is 45 years away but rather for whatever short-term goal he has in mind (house, grad. school, emergency fund, whatever).</p>
<p>If, however, he is confident that he can make do without the money in five years and would like to take a significant step towards a secure retirement, then a diversified portfolio of stock mutual funds would be appropriate. With $8000, it would be difficult to acquire positions in more than three mutual funds and diversify properly (many fund minimums are $2500), so the best way to start investing would be through low-cost index funds. Vanguard is the best brokerage for this (<a href="http://www.vanguard.com);%5B/url%5D">www.vanguard.com);</a> they are well-known for their quality index funds. The OP could thereby ensure that he achieve the market return, which is better than what 90% of investors can say! 2/3 into a U.S. total stock index (VTSMX) and 1/3 into an international total stock index (VGTSX) would be suitable. As supervillain has mentioned, the Roth IRA is a fantastic type of account through which to save for retirement or other goals (after-tax contributions grow tax-free...max. contribution is currently 4k per year and goes up to 5k in 2008, I believe. If one has the extra funds, one should max out their contribution each year and invest this money (can be invested in anything, but stocks are best for the long haul). You should contribute this max until you're no longer eligible (if your income grows to be more than 95k).</p>
<p>Hope this helps!</p>
<p>regardless of whether or not retirement is his goal, the allocation of a portfolio targeted between 2020-2040 would be suitable for the returns he desires (he asked what stocks would be good picks in his first post). secondly, the roth ira money can be taken out for higher education purposes; when he is ready to pay off the loan he has, there is no hassle in taking out the money, while still getting the advantage of a roth ira. i agree, though, that a bond may be a suitable alternative with the other 4000 that cannot be invested. retail corporate bonds would be perfect provided he has some guidance with a professional.</p>
<p>oh, and i agree with the index fund idea for the roth too. "beating the index" is just too hard and pointless effort.</p>
<p>correction: he can take out his contributions at any time. the earnings withdrawn for higher education would be taxed at standard income tax levels.</p>