Roth IRA withdrawals

Q. Can I invest in a Roth IRA and withdraw money from it whenever I need to? — C. W., Augusta, Georgia

A. Generally, no. A Roth IRA is a retirement account designed to let you build a nest egg for the future. Its rules require you to have the account for at least five years and to not take withdrawals until age 59

½. If you follow the rules, withdrawals are tax-free, which can be a powerful benefit in retirement.

You can withdraw sums you contributed at any time, tax- and penalty-free, but withdrawing any earnings those sums generated in the account can trigger taxation and/or a 10% penalty, depending on how long you’ve had the account. There are a few exceptions, though, such as withdrawals for a firsttime home purchase or for qualified education expenses that let you avoid penalty charges and/or taxes.

Never keep any money that you might need within five (or, to be more conservative, 10) years in stocks as the stock market can be volatile. Shortterm dollars are best kept in bank accounts, certificates of deposit, money market accounts or other less volatile places.

Q. If I hold some paper stock certificates for a company that’s still around, how do I sell those shares? — L. R., Butler, Pennsylvania A.

Paper certificates can be a hassle. Most shares are just owned electronically these days. Your brokerage may be able to handle the matter for you. Otherwise, call the company or check its website’s investors page to see what transfer agent it uses, as the agent can probably buy your shares from you.

Focus on price and quality

A common mistake many investors make is focusing on just a company’s quality or just its stock price. It’s important to consider both when making investing decisions. You’ll want to be able to answer the following questions affirmatively:

1. Is this a healthy, growing, high-quality company?

2. Is the company’s stock priced attractively right now?

Fail to answer “yes” to both questions, and you might end up buying the low-priced stock of a company that’s not growing significantly … or that’s deep in unmanageable debt … or that’s in the midst of a scandal.

Alternatively, you might buy into an exciting, well-managed, fast-growing company when its shares are grossly overvalued and more likely to fall than rise in the near future. Buying when a stock seems undervalued offers you a margin of safety. When a stock is overvalued, it can mean that much of its growth potential over the next few years is already factored into its price.

Here are some characteristics of a high-quality company: a strong balance sheet (ideally, with little-to-no debt and ample cash); sustainable competitive advantages (such as a valuable brand or economies of scale); a track record of growth (in revenue, earnings, profit margins and market share); being part of a growing industry with a large market to tap; a meaningful and growing dividend (not required, but a plus); and skilled and trustworthy management. Few companies will qualify on all counts, but the more positive attributes, the better.

Determining whether a stock is attractively valued can be difficult, and the views of savvy stock analysts can differ sharply on any given stock. Comparing a stock’s recent and/or forward-looking priceto-earnings ratios to their five-year averages can give you a rough idea. If there are no positive earnings, you might look at the price-to-sales ratio.

Having a good grasp of a stock’s quality and price can also help you decide when to sell.