Bogleheads

[Gaviota]

What is the best approach for a recent college grad who knows little but wants to get started? Any advice for the simplest of Vanguard fund choices would be appreciated considering diversification in asset classes and minimum investment requirements.

Also not sure if a person in their early 20's should begin with a tax deferred IRA, Roth ( 401k not available) or skip the retirement accounts in favor of a traditional account to concentrate on savings for a primary residence down payment.

Thanks.

[bottlecap]

Best advice: Read. It's a great time to educate yourself. On this site, you will find great book recommendations. I would begin with The Bogleheads' Guide to Investing, and then read the following (not necessarily in this order):

The Bogleheads' Guide to Retirement Planning
The Four Pillars of Investing
All About Asset Allocation
The Only Guide To A Winning Investment Strategy You'll Ever Need

If you are interested in the data behind the theories:

A Random Walk Down Wall Street

If you are mathematically-minded:

The Intelligent Asset Allocator

You can look any of these up on Amazon.com and many of the authors post here. Once you've gotten a few under your belt, come back here with any questions and you'll get plenty of help.

Good luck,

JT

[gcturp]

Well - you'll likely get a bunch of opinions; here is mine.

I am assuming you are not in a high tax bracket (Fed >=35%), so if that assumption is correct than I would:

1) Invest in a roth ira (through vg). You can only invest 5K per year. You cannot really make 'catchup' contributions later (other than when you are much older). Ideally when you retire, you'll have both a roth and a regular ira; you should use the regular ira when the tax deduction is more favorable (when you are in a higher bracket and/or older).

2) If 1K is the most you could do for now, then just go with the vg Star fund; if you can get 3K then your choice of funds greatly increases. I would recommend a 'lifecycle' fund such as Target Retirement 2050 to start - or whatever is aligned with your risk tolerance. Don't forget to signup for electronic statements, and electronic confirmations to avoid fees at vg.

3) Go to the library and check out the 'bogleheads guide to retirement planning' (maybe this should be point #1, not #3. . .). All of the authors are regular contributors on this board. I suppose you could buy it too.

4) Buying/owning a house is overrated - they're money pits: things break, things need (or are desired) to be upgraded, taxes, insurance, closing cost, realty expenses when you sale, etc. Of note - don't fall for the 'tax advantage of owning a house' b.s., the converse of the "advantage" is you'll lose the standard deduction. I would recommend you not worry about a house until you're more settled - specifically married or the like. A good rule of thumb is that you should only buy a house when you know, with reasonable certainty, that you'll live in it for 5-7 years. Enjoy the simple(r) life while you can. . .

5) Perhaps before you fund a roth ira, have about 1 month worth of expenses in a savings account for emergencies. After a while build that emergency fund up to a few months.

6) Listen to good advice on the radio. Check out Clark Howard (clarkhoward.com, with links to internet radio sites). Be careful not to listen to bad advice (most TV, many radio guys).

Good luck!

[ruralavalon]

Welcome to the forum .

Its great that you are getting started early, and are interested in advice on how to invest in low cost funds.

1. Read "The Bogleheads' Guide to Investing", IMO its the best place to start and covers all the basics (and more) without being unduly technical;

2. Put some savings aside for emergencies. As a recent graduate try to keep your living expenses low, save and avoid debt;

3. Open an IRA at Vanguard, if in the 15% tax bracket or lower open a Roth, otherwise a deductible IRA. To open an IRA you need a minimum of $3,000 to start. The max you can contribute per year is $5,000. Look here for details-- https://personal.vanguard.com/....Link=facet ;

4. Initially you will only be able to invest in one fund, because the minimum intial investment for almost all Vanguard funds is $3,000.

5. If that is too much, start with the Star fund, initial minimum of $1,000, in a taxable account. It is a balanced type fund, about 65% stocks and 35% bonds, look here for details-- https://personal.vanguard.com/....IntExt=INT ;

6. The Balanced Index would be a good single fund to start with, see details here-- https://personal.vanguard.com/....guard/core . It contains about 60% US stocks, and about 40% US bonds. Another single fund initial possibility is one of the Target Retirement funds, look here for details and comparison https://personal.vanguard.com/....rementList .

7. After a year or so when you have more money available for investments, you can construct a porftfolio of multiple funds if you wish.

I hope that this helps, good luck.
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"Everything should be as simple as it is, but not simpler." - Albert Einstein

[flyfisher_work]

I think you can open a Roth for $1000 min. with the Vanguard STAR fund.

Time is on your side...you can start small, read some good books recommended on this site, then develop a more detailed plan later. I even recommend contributing a little money every month in addition to the $1K min...it helps build a good habit that will serve you well in the future.

[Adrian Nenu]

Recommended books:

"Against The Gods, The Remarkable Story of Risk" - Peter Bernstein

"The Misbehavior of Markets" - Benoit Mandelbrot

"The Intelligent Investor" - Benjamin Graham

"Asset Allocation" - Roger Gibson


The best advice I can offer is "moderation and diversification". Good examples of this are Vanguard's balanced funds such as STAR, Wellington, LS Income, TR Income and Wellesely funds. Nothing fancy but they do produce steady returns year after year and don't suffer huge losses during bear markets.

Also my asset allocation rule of thumb based on the 1973-1974, 2000-2002 and 2008-2009 bear markets:

Tolerable Loss x 2 = Equity Allocation < 50%

Adrian
anenu@tampabay.rr.com

[retiredjg]

Gaviota, welcome to the forum!

1) Emergency Fund - you'll need this your entire life so get started now. Hold it in plain savings account, money market - something that cannot lose value. Start with 3 months of expenses. As you mature, raise that to at least 6 months, if not 9 or 12. To a certain extent, the amount can depend on how stable your job is - you probably do not need 12 months of expenses saved if you hold a government jog. But if you are in the private sector doing construction or IT work, 3 months would probably not be enough to tide you over a layoff.

2) You'll have to decide between the Roth IRA and the house. It would be foolish to go 100% house and no Roth though. For the first few years, I would lean heavily to Roth IRA.

3) Once you have a small emergency fund, you can actually use your Roth IRA as a secondary emergency fund. You can take your Roth contributions (not earnings) out without penalty. This should "dire emergency" money. If you have no "dire emergency", the money stays in the Roth and eventually becomes retirement money. If you do this, that money should be in cash, money market, short term bonds - not stocks. When your real emergency fund is built up to your goal, then this Roth emergency money can be exchanged for stocks.

Here is a link to lots of good starting information. Please see Bogleheads Financial Start-Up Kit on the Bogleheads Wiki.
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Links to Investment Planning and Asking Portfolio Questions

[Gaviota]

Thanks much for all of the great suggestions. Lots of useful information and book references that will greatly help!

Gav