Opening a Roth IRA

[jatindrj]

Hi everyone. I am looking to open an IRA account for myself. I have signed up for eTrade and Vanguard (no money has gone into either yet) and I have no idea where to invest or what to do. I was considering the Vanguard Target Retirement 2055 Fund. Is this a good place to start?

Some info about me:
22 years old
Salary ~15k, will increase to 40k in next few months to a year
Amount I have to invest - $1,000

[emdoc]

Welcome to Bogleheads! I'd say that a Target Retirement Fund 2055 is probably too aggressive for anyone. I started investing at age 25 in a Target Retirement Fund 2030 and would recommend that - it has a nice mix of 80% stocks and 20% bonds (most folks will tell you that it is advisable to have at least 20% bonds, or your age in bonds). Vanguard has been an excellent firm to invest in with very cheap funds. Haven't looked much into etrade but highly recommend Vanguard.

[bUU]

I'd think twice before making a big commitment to using E-trade, maybe ask around for more feedback on it. We just logged into E-trade for the last time, to download our Form 1099-INT. I cannot put my finger on it precisely, but it just seemed to me that they were closing down things one by one. We used to have a savings account and CDs with E-trade Bank (a subsidiary), and I don't see them offering those things anymore, and their "high-yield" checking account pays 0.01%-0.05%... and they still call it "high-yield"? We once re-financed through E-trade, and I see they're not accepting mortgage applications any longer.

I see people talking about Ameritrade and Fidelity and Schwab, these days - E-trade, not so much.

[Johm221122]

Do you have emergency fund?
Debt?
401 with match?
John

[jatindrj]

Welcome to Bogleheads! I'd say that a Target Retirement Fund 2055 is probably too aggressive for anyone. I started investing at age 25 in a Target Retirement Fund 2030 and would recommend that - it has a nice mix of 80% stocks and 20% bonds (most folks will tell you that it is advisable to have at least 20% bonds, or your age in bonds). Vanguard has been an excellent firm to invest in with very cheap funds. Haven't looked much into etrade but highly recommend Vanguard.

Thank you! After reading other places I am most likely going with Vanguard. Its just a question of which fund. If you wouldn't mind explaining, why would you want that much in bonds? Also, what you mean by the 2055 being too aggressive.

I do have an emergency fund as well as a few hundred in debt which will be paid off in about 3-4 months. No 401

[Johm221122]

Welcome to Bogleheads! I'd say that a Target Retirement Fund 2055 is probably too aggressive for anyone. I started investing at age 25 in a Target Retirement Fund 2030 and would recommend that - it has a nice mix of 80% stocks and 20% bonds (most folks will tell you that it is advisable to have at least 20% bonds, or your age in bonds). Vanguard has been an excellent firm to invest in with very cheap funds. Haven't looked much into etrade but highly recommend Vanguard.

Thank you! After reading other places I am most likely going woth Vanguard. Its just a question of which fund. If you wouldn't mind explaining, why would you want that much in bonds?

How would you react to say a 50% drop?How about you get to 50k and it drops 50%?
John

[NYBoglehead]

Welcome to Bogleheads! I'd say that a Target Retirement Fund 2055 is probably too aggressive for anyone. I started investing at age 25 in a Target Retirement Fund 2030 and would recommend that - it has a nice mix of 80% stocks and 20% bonds (most folks will tell you that it is advisable to have at least 20% bonds, or your age in bonds). Vanguard has been an excellent firm to invest in with very cheap funds. Haven't looked much into etrade but highly recommend Vanguard.

Thank you! After reading other places I am most likely going with Vanguard. Its just a question of which fund. If you wouldn't mind explaining, why would you want that much in bonds? Also, what you mean by the 2055 being too aggressive.

I do have an emergency fund as well as a few hundred in debt which will be paid off in about 3-4 months. No 401

I would disagree that Target Retirement 2055 is too aggressive. In 42 years you will be 64 years old, and over that 42 years it will gradually become more conservative. By "too aggressive" the poster meant that it had a very high allocation to stocks and fewer bonds. Stocks are more volatile and generally more risky. A generality that is often used on this board is to have roughly your age in bonds. It is not written in stone and for someone so young you have ample time to take risk and make your portfolio more conservative as you age.

[jatindrj]

Welcome to Bogleheads! I'd say that a Target Retirement Fund 2055 is probably too aggressive for anyone. I started investing at age 25 in a Target Retirement Fund 2030 and would recommend that - it has a nice mix of 80% stocks and 20% bonds (most folks will tell you that it is advisable to have at least 20% bonds, or your age in bonds). Vanguard has been an excellent firm to invest in with very cheap funds. Haven't looked much into etrade but highly recommend Vanguard.

Thank you! After reading other places I am most likely going woth Vanguard. Its just a question of which fund. If you wouldn't mind explaining, why would you want that much in bonds?

How would you react to say a 50% drop?How about you get to 50k and it drops 50%?
John

Not sure exactly. Most likely I'd leave it as is and monitor it closely and get advice before making any big decisions. What would be the smart move in this situation?

[Johm221122]

Welcome to Bogleheads! I'd say that a Target Retirement Fund 2055 is probably too aggressive for anyone. I started investing at age 25 in a Target Retirement Fund 2030 and would recommend that - it has a nice mix of 80% stocks and 20% bonds (most folks will tell you that it is advisable to have at least 20% bonds, or your age in bonds). Vanguard has been an excellent firm to invest in with very cheap funds. Haven't looked much into etrade but highly recommend Vanguard.

Thank you! After reading other places I am most likely going woth Vanguard. Its just a question of which fund. If you wouldn't mind explaining, why would you want that much in bonds?

How would you react to say a 50% drop?How about you get to 50k and it drops 50%?
John

Not sure exactly. Most likely I'd leave it as is and monitor it closely and get advice before making any big decisions. What would be the smart move in this situation?

As NYBoglehead said you picked the right fund for your age but only if you stay the course .Remember stocks drop,sometimes a lot but with your time frame you could be supper aggressive if you don't sell at severe market downturns.Just keep emergency fund,don't sell when market drops and add money as you can and you picked the right fund
John

[Default User BR]

I see people talking about Ameritrade and Fidelity and Schwab, these days - E-trade, not so much.

I opened an account at ETrade in December and sent assets from TD Ameritrade there to collect a $1000 bonus. I haven't had any problems. I don't care about banking at my brokerage.


Brian

[bUU]

That's one.

[Default User BR]

That's one.

Here's a thread about the offer: http://www.bogleheads.org/forum/viewtopic.php?f=11&t=103854


Brian

[bUU]

Okay so that's three (I think).

[jatindrj]

Thanks for the replies everyone. I decided to go with Vanguard and the TRF 2055. I am still very new to this and have a couple of questions. I opened my account with $1,000. The next day, it said my account balance went up to $1,004.78 and today it went down to 1,001.87. Is this change added/subtracted to my account everyday? How do I know when the gains are reinvested? I have an available balance of 1.87 and unrealized gain/loss of 2.71. What does this mean?

Finally, once I do gain the means to add/open another fund, what are some places I should look into?

Thanks in advance!

[Jordana]

Vanguard has a minimum of $3000 to open a Roth IRA. My son just started one with $1500 so he went with Schwab and intends to switch to Vanguard when he has enough money. Schwab does have competitive expense fees with a low basis but obviously Vanguard has been doing this for longer. I have also found that when my kids have started brokerage accounts, I call up and tell them and get free trades.

[Default User BR]

Vanguard has a minimum of $3000 to open a Roth IRA.

jatindrj just indicated that a Roth was opened at Vanguard with $1000, so this would seem to be incorrect.


Brian

[pjstack]

Thanks for the replies everyone. I decided to go with Vanguard and the TRF 2055. I am still very new to this and have a couple of questions. I opened my account with $1,000. The next day, it said my account balance went up to $1,004.78 and today it went down to 1,001.87. Is this change added/subtracted to my account everyday? How do I know when the gains are reinvested? I have an available balance of 1.87 and unrealized gain/loss of 2.71. What does this mean?

Finally, once I do gain the means to add/open another fund, what are some places I should look into?

Thanks in advance!

My explanation will be simplified, but I hope it will give you the general idea.

Your fund is really two funds, one with stocks and another with bonds. The funds are made up of many,many different stocks (and the bond fund also) and every day at the market closing the prices of all the stocks are added up and that will comprise the end-of-day price of your fund. This price will vary every day. It could go up, it could go down.

Sooner or later some of the stocks in the fund will throw off dividends and these dividends will be invested back into the fund and you will have bought more shares.

At the moment, since you just bought the fund, you have a certain number of shares. This number of shares will remain constant. It is the price of the shares that will fuctuate daily.

Nothing has been re-invested yet, it is just the value of the shares that is changing.

Later, you will buy more shares, or dividends and/or interest will be re-invested and the number of your shares will increase.

As I said, that is a simplified version of events. If you have more questions, the fine folks here will explain (probably better).

[jatindrj]

Thanks for the replies everyone. I decided to go with Vanguard and the TRF 2055. I am still very new to this and have a couple of questions. I opened my account with $1,000. The next day, it said my account balance went up to $1,004.78 and today it went down to 1,001.87. Is this change added/subtracted to my account everyday? How do I know when the gains are reinvested? I have an available balance of 1.87 and unrealized gain/loss of 2.71. What does this mean?

Finally, once I do gain the means to add/open another fund, what are some places I should look into?

Thanks in advance!

My explanation will be simplified, but I hope it will give you the general idea.

Your fund is really two funds, one with stocks and another with bonds. The funds are made up of many,many different stocks (and the bond fund also) and every day at the market closing the prices of all the stocks are added up and that will comprise the end-of-day price of your fund. This price will vary every day. It could go up, it could go down.

Sooner or later some of the stocks in the fund will throw off dividends and these dividends will be invested back into the fund and you will have bought more shares.

At the moment, since you just bought the fund, you have a certain number of shares. This number of shares will remain constant. It is the price of the shares that will fuctuate daily.

Nothing has been re-invested yet, it is just the value of the shares that is changing.

Later, you will buy more shares, or dividends and/or interest will be re-invested and the number of your shares will increase.

As I said, that is a simplified version of events. If you have more questions, the fine folks here will explain (probably better).

Thank you. So is this something I should monitor daily? Weekly? Monthly?

[pjstack]

The OP asked,"So is this something I should monitor daily? Weekly? Monthly?"

In my opinion your monitoring should be simply for curiosity, not for action.

By that I mean there are other things you should consider or concern yourself with. Your Roth IRA is a longterm investment. It has great advantages for long term: it is tax deferred and you can switch funds within it without tax consequences. But don't fiddle with it too much. You have made a decision as to the stock/bond mixture with the fund you have chosen ( the "asset allocation" you hear so much about on this board). Your circumstances and/or thinking concerning your asset allocation may change in the future as you read more (check out the wikki on this site).

Don't fret much about the daily fluctuations in your fund's price.

You have made a good start in long term investing (not speculation) and should now read some of the books suggested in the wikki.

I was hoping some of the more knowledgable (and articulate) posters here (like Nisiprius, etc.) would jump in and help you (as a novice) learn a bit more about investing.

[Jeff7]

I'm relatively new to this investing stuff as well, but I will back up pjstack's post.

In my opinion your monitoring should be simply for curiosity, not for action.

Your Roth IRA is a longterm investment.

Don't fret much about the daily fluctuations in your fund's price.

Trying to "fiddle with it" is trying to time the market, and what I've read throughout three books and this site is that being "good" at picking stocks is something that the vast majority of people cannot do profitably. Just ride the market average - in this case, average is really not bad at all.

Yes, the market is going to take some crazy dives. It happens. Long-term, they're little blips. The general trend is one of a slow and steady increase.

Do the personal investment statement thing. It might seem weird at first to write an agreement with and for yourself, but it will at least serve as a foundation, and discouragement against panicky or rash decisions.
Buy and hold, keep putting money into it, and don't try to beat the average.

The rebalancing thing: I've got written to do that once a year, and only if the investments have strayed beyond ±5 percentage points of where they should be - the "should be" is also written in my investment statement. (In my own case, I've elected for bonds%=age-5, the rest of investments in stocks. Of the stocks allocation, 15% of it can be international.) And the timing of the rebalancing has nothing to do with the markets - it's the anniversary of when I opened the IRA. Simple as that.
How did I choose that date? That's when the holiday bonus direct deposit showed up in my bank account. Off I went to Vanguard.com. (I, too, started with one of their $1k-minimum funds. It wasn't a huge bonus or anything...but it was still enough to get me good and motivated. )