Starting a Roth IRA - Questions

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
oilmanjr101
Posts: 6
Joined: Mon Mar 20, 2017 9:20 am

Starting a Roth IRA - Questions

Postby oilmanjr101 » Mon Mar 20, 2017 9:48 am

I've been reading here for quite a while but this is my first post. A little background information: I am 25 years old, not married, graduated college 2 years ago and have been working as a mechanical engineer. I would like to start a Roth IRA and contribute the $5,500 each year. I believe my deadline for 2016 is next month (April 2017). According to what I have been reading, it sounds like I should start one with Vanguard. I have a financial adviser at Edward Jones but would like to get your opinions on the best route to go when starting a Roth IRA. If I go through Vanguard, is there someone there who can set up the fund for me? I don't have enough experience to feel comfortable choosing my own investments. I'm looking forward to the your responses. Thanks in advance!

User avatar
nedsaid
Posts: 7457
Joined: Fri Nov 23, 2012 12:33 pm

Re: Starting a Roth IRA - Questions

Postby nedsaid » Mon Mar 20, 2017 2:25 pm

What I would do is go to Vanguard and buy either a Target Date Retirement or a LifeStrategy Fund. At age 25, I would look at buying a Vanguard Target Date Retirement 2055 fund, which will be quite aggressive. As you get older, the fund will become more conservative, that is less stocks and more bonds. The 2055 fund is 90% stocks and 10% bonds. If that is too aggressive for you, the Vanguard LifeStrategy Growth Fund is 80% stocks and 20% bonds.

If you are a "middle of the road" investor, the Vanguard LifeStrategy Moderate Growth is a 60% stocks/40% bonds fund. This is a fund that can be held for a lifetime and should be a more stable and less volatile fund than the first two funds that I recommended.

These "set it and forget it" funds are perfect for a first time investor in a Roth IRA.
A fool and his money are good for business.

Rainmaker41
Posts: 355
Joined: Tue Apr 26, 2016 11:34 am

Re: Starting a Roth IRA - Questions

Postby Rainmaker41 » Mon Mar 20, 2017 2:31 pm

Whatever you do, if you have $5,500 spare cash available, don't delay your Roth IRA contribution and miss the 2016 deadline of mid-April! :shock: You could contribute to a Vanguard Roth IRA into the Federal Money Market settlement fund (cash) this week, and choose the investment fund a bit later after you've learned enough to make your choice.

Target 2055 (90/10 allocation) or LifeStrategy Growth (80/20) are fine choices at Vanguard.

Not that what I do or say has any great meaning, but I am 26 or so and use LifeStrategy Growth in my Roth IRA. I figure the 20% bond allocation gets me a hair less volatility, which reduce my 'panic risk' since I haven't been through a crash yet.

As to setting up the account, you can do everything online; it is fairly straightforward. If you need help you could call Vanguard, but I imagine they are a bit busy with tax season. You could also ask questions here if you are unsure about a given step or action.

To learn, the forum and wiki here at Bogleheads are excellent, as is this short pamphlet explaining why, among other things, you probably shouldn't trust Edward Jones.

https://www.etf.com/docs/IfYouCan.pdf
My username is not about money, but is my old online gaming username. I can't say that I make a great deal of money; I just hate spending it. Marrying the most loving woman in the world October 2017.

LeeMKE
Posts: 1518
Joined: Mon Oct 14, 2013 9:40 pm

Re: Starting a Roth IRA - Questions

Postby LeeMKE » Mon Mar 20, 2017 3:04 pm

In addition to the ROTH account, do you have a 401K available at work? That would be the next opportunity to investigate. The more money you can sock away now, the lower the draw you need to make for the rest of your career to fund retirement. At least 15% of gross income saved for retirement is a rule of thumb.
The mightiest Oak is just a nut who stayed the course.

oilmanjr101
Posts: 6
Joined: Mon Mar 20, 2017 9:20 am

Re: Starting a Roth IRA - Questions

Postby oilmanjr101 » Mon Mar 20, 2017 3:14 pm

I really really appreciate the replies so far. I will look into opening a Vanguard account within the next few days. I am currently only putting 6% into a 401k to get the full employer 50% match.

Rainmaker41
Posts: 355
Joined: Tue Apr 26, 2016 11:34 am

Re: Starting a Roth IRA - Questions

Postby Rainmaker41 » Mon Mar 20, 2017 4:35 pm

It sounds like you are doing the right thing, even if your 401k has huge fees. (hypothetical worst case scenario; don't panic)

The employer match is almost always more valuable than any loss due to high-fee funds in even the worst 401k-type plans. You are getting an immediate 50% return on investment on contributions up to 6%. There are threads about this calculation in more detail, but it can take decades of high-fee compounding to exceed the value of that match. Whenever you change employer, you can rollover the 401k balance to a pre-tax IRA (different from a conversion to Roth).

If you fill up an IRA, whether traditional or Roth, and still want to contribute more, you then must go back to the 401k. At that point, the trade-off is between tax favorability vs. taxable account and 401k fees; tax deferral on contributions and growth usually wins.

If you post a list of all 401k fund options, including Expense Ratios, you will get great advice here from more knowledgeable people than me on how to optimally choose funds and locate asset classes.
My username is not about money, but is my old online gaming username. I can't say that I make a great deal of money; I just hate spending it. Marrying the most loving woman in the world October 2017.

User avatar
Duckie
Posts: 4790
Joined: Thu Mar 08, 2007 2:55 pm

Re: Starting a Roth IRA - Questions

Postby Duckie » Mon Mar 20, 2017 5:11 pm

oilmanjr101 wrote:I have a financial adviser at Edward Jones

So what do you hold at Edward Jones? Is it a taxable account or some type of IRA?

oilmanjr101
Posts: 6
Joined: Mon Mar 20, 2017 9:20 am

Re: Starting a Roth IRA - Questions

Postby oilmanjr101 » Tue Mar 21, 2017 7:32 am

Duckie wrote:
oilmanjr101 wrote:I have a financial adviser at Edward Jones

So what do you hold at Edward Jones? Is it a taxable account or some type of IRA?


I actually do not have anything there. I just have an advisor that I've spoken to quite a few times and he has tried to convince me to start a Roth IRA there. He is a nice guy and I trust him but I would rather not pay the fees if they are cheaper through Vanguard. I have an Etrade account for stocks and even the fees on there do not do not sit right with me.

aristotelian
Posts: 1830
Joined: Wed Jan 11, 2017 8:05 pm

Re: Starting a Roth IRA - Questions

Postby aristotelian » Tue Mar 21, 2017 8:03 am

Stay away from Edward Jones. Even if your inclination is to delegate to someone else, you still need to learn about money and investing in order to be able to hold them accountable. At that point, you know what you need to do it on your own. The rest you can learn here. If you make any mistakes, do it while you are young and you can learn from it. Any mistakes you make will not cost you as much as Edward Jones' annual fees taken out each quarter, every quarter.

oilmanjr101
Posts: 6
Joined: Mon Mar 20, 2017 9:20 am

Re: Starting a Roth IRA - Questions

Postby oilmanjr101 » Wed Mar 22, 2017 8:55 am

I have funded the Vanguard account and am ready to purchase funds and create my portfolio. This is the part where I will need the most assistance. Given my age and situation, which funds would be in my best interest to purchase?

Rainmaker41
Posts: 355
Joined: Tue Apr 26, 2016 11:34 am

Re: Starting a Roth IRA - Questions

Postby Rainmaker41 » Wed Mar 22, 2017 9:27 am

Most here would not object to either of these, even if you might plan to micromanage after a few years when you know more and have enough to get lower fee Admiral Shares of the constituent funds.

90% stocks now and for about 10 years, then auto glide path to 80% stocks in 20 years, continuing down to retirement (look at closer target date funds to get an idea):

https://personal.vanguard.com/us/funds/ ... IntExt=INT

80% stocks fixed allocation (of course, you could change your allocation later):

https://personal.vanguard.com/us/funds/ ... undId=0122

Whichever you choose, don't change the allocation suddenly after a few years. Plus, don't agonize over the allocation early on. Savings rate and staying the course is far more important. That said, you should think of your 401k and Roth IRA as one single portfolio. Hypothetically, if the only decent (cheap fees) fund in your 401k is the S&P 500 index, you might find that holding LifeStrategy Growth (80% stocks) in your Roth IRA and only S&P 500 (large cap stocks) in your 401k gets you an overall 90% stock allocation.
Last edited by Rainmaker41 on Wed Mar 22, 2017 11:10 am, edited 1 time in total.
My username is not about money, but is my old online gaming username. I can't say that I make a great deal of money; I just hate spending it. Marrying the most loving woman in the world October 2017.

harvestbook
Posts: 228
Joined: Sat Mar 18, 2017 7:12 pm

Re: Starting a Roth IRA - Questions

Postby harvestbook » Wed Mar 22, 2017 10:05 am

Second on avoiding Edward Jones. They're nice people (as salespeople go) but the firm has its dark clouds, high fees, and commission kickbacks. They are salespeople, not advisers, although they do make you feel good and smart and safe. And they take your money for that feeling.

I had EJ first because i was dumb and ignorant. They are not a fiduciary. I got "advice" that cost me a few thousands dollars and several lies of omission--of course they are legally allowed to do that because we have no fiduciary standard in the broker business. Then I learned about Vanguard and ran both for a while. After a couple of years of big return differences due almost entirely to fees, I fully switched to vanguard. Once you start using it, you probably won't need much advice for a while if you believe in the "simple, broad, cheap" BH philosophy. Good luck.

oilmanjr101
Posts: 6
Joined: Mon Mar 20, 2017 9:20 am

Re: Starting a Roth IRA - Questions

Postby oilmanjr101 » Wed Mar 22, 2017 1:52 pm

Thank you for the advice! I am completely new to Vanguard so I am a bit confused on how to do exactly what you are saying. I have made it to "Buy Vanguard funds" and then "Add another Vanguard mutual fund." Do I add from the list of funds they recommend? If so, what are the tickers you would recommend and what % of my portfolio in each one? Is there a fee for the initial buying trade? What about for for trading into different funds down the road?

Rainmaker41
Posts: 355
Joined: Tue Apr 26, 2016 11:34 am

Re: Starting a Roth IRA - Questions

Postby Rainmaker41 » Wed Mar 22, 2017 2:08 pm

Correct. You now have $5,500 in your Federal Money Market settlement fund, which means you have that amount of 'cash' contributed to your Roth IRA available to invest. From "Add another Vanguard mutual fund", type in the name or ticker of the fund you want. Don't try to balance your IRA with different funds; with $5,500 it isn't worth the effort and chance of user error or panic for now. Use one all-in-one fund for a few years while you learn the ropes.

VASGX LifeStrategy Growth Fund for the 80% stock fund

OR

VFFVX Target Retirement 2055 for the 90% stock fund

If you know your 2017 earnings will be under $117k, you can now also set up automated 2017 contributions for the rest of the year to the same fund. $300 twice a month on your pay days starting in April will get you to $5,400 by the end of December; you could kick in $100 manually now or later to round it out. My Accounts -Account Maintenance - Automatic Investment. If you do this, set it up to contribute directly from your external bank account to the fund you chose earlier; no need or point in keeping anything in the cash settlement fund. Once that is done, you are free to utterly ignore your Roth IRA until the end of the year when you set up the 2018 contribution schedule and file 2017 taxes. :)

There are no fees for any of this. Just make sure you have opted out of paper statements; I think those trigger an annual fee.

I do suggest posting your 401k funds and options on this forum. You'll get holistic advice for your whole portfolio. Probably best to start a new thread in this format:

viewtopic.php?t=6212
Last edited by Rainmaker41 on Wed Mar 22, 2017 2:22 pm, edited 1 time in total.
My username is not about money, but is my old online gaming username. I can't say that I make a great deal of money; I just hate spending it. Marrying the most loving woman in the world October 2017.

oilmanjr101
Posts: 6
Joined: Mon Mar 20, 2017 9:20 am

Re: Starting a Roth IRA - Questions

Postby oilmanjr101 » Wed Mar 22, 2017 2:19 pm

I feel like my only fee may come in the form of what I owe the people at Bogleheads for all of the walkthrough style help. Wow, thank you! So all $5,500 of my account should go into VFFVX if 90% stocks is what I want?

As for the 2017 IRA contributions, am I able to contribute another $5,500 for this year right now and invest that right away as well?

Rainmaker41
Posts: 355
Joined: Tue Apr 26, 2016 11:34 am

Re: Starting a Roth IRA - Questions

Postby Rainmaker41 » Wed Mar 22, 2017 2:25 pm

Yes, if you want to, you can throw in $5,500 for 2017 now. IRA contribution timing is a topic of some debate here. Personally, I do twice-monthly contributions only because I don't have the surplus (beyond the reserves I choose to keep on hand) cash available. I'm technically lump-summing the contributions as I'm paid. I don't max out my 403b, so it isn't as though I'm giving up tax-advantaged space.

There is nothing wrong with either approach.

You owe Vanguard no fees, because... you now own Vanguard. You owe me no fees, because I knew nothing about any of this two years ago and hadn't invested anything until the end of 2015. I'm just contributing out of gratitude for the advice I got myself then.

:)
My username is not about money, but is my old online gaming username. I can't say that I make a great deal of money; I just hate spending it. Marrying the most loving woman in the world October 2017.


Return to “Investing - Help with Personal Investments”

Who is online

Users browsing this forum: Bing [Bot], chefann, chirag27, Climbingtothetop, Dee-89, deskjockey, flamesabers, Google [Bot], NancyABQ, radioheadt, runner540, ruralavalon, shorty313, Speedy186, whanaumark, WhiteMaxima and 104 guests