New Job, First Time Investing, How-To

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error
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New Job, First Time Investing, How-To

Post by error » Sun Sep 17, 2017 12:46 pm

Originally posted here: viewtopic.php?f=2&t=226104&p=3531855#p3531855
I just started a new job(September) and have no investments of any kind. I will be making ~80k a year, I majored in Computer Science to give you an idea of my earning potential. As suggested by a user I started a Roth 401k to take advantage of my lower tax bracket for this year. I opened a Roth IRA with vanguard, it has $0 at the moment. I am maxing my 401k contributions (40% max per pay period) and have 100% match up to 6% with true-up. I also have an HSA that I am maxing out(about $550 per pay period).


Emergency Funds:: Yes
Debt: None
Tax Filing Status: Single
Federal Tax Rate: For this year I should be 15%, next year 25%
State Tax Rate: For this year I estimate 3%, next year 5.5%
State of Residence: CT
Age: 28
Desired Asset Allocation: 80+%? stocks /20-%? Bonds
Desired International Allocation: ?

Size of Current Portfolio: 0$

Current Retirement Assets
401k (Roth)

80% S&P 500, Expense Ratio: 0.05%
20% Intermediate Government Bond Index Fund, Expense Ratio: 0.08%
Match: 100% up to 6%

Roth IRA at Vanguard
Nothing allocated, I will probably put in $5500

Contributions
I don't have exact figures. Paid bi-weekly I will experience 8 pay periods this year. Each pay period $550 is deducted an placed in HSA. 40% of pay is placed in r401k. I estimate about 23k income before anything taken out. which means about 3k per pay period. I estimate 18,726 after taking into account HSA and benefits. 18,726 * 0.4 = 7,490 (estimated r401k contribution for the year)

I want to put $5500 into rIRA

Questions
1. See my previous thread for the long version: viewtopic.php?f=2&t=226104&p=3531855#p3531855
2. I chose to open an HSA, but I don't see where I would access/manage it. Will I get more information when I receive my Health insurance papers?
3. I had to put numbers in when creating my 401k so I chose 80/20 and chose just the S&P 500 index and "Intermediate Government Bond Index Fund". I have approximately 10 investments to choose from plus about 11 "target retirement funds" to choose from. How do I know which ones are worth investing in?


Fund names:
Stable value:
Stable Value Option. ER: 0.31%

Bond:
Intermediate Government Bond Index Fund. ER: 0.08%
U.S. Core Fixed Income Balanced Risk Fund. ER: 0.15%

US Stocks:
S&P 500 Index Fund. ER: 0.05%
S&P Mid Cap Index Fund. ER: 0.07%
Russell Small Cap Index Fund. ER: 0.07%

International Stocks:
Intl Developed Mkts Index Fund. ER: 0.12%
Emerging Markets Index Fund. ER: 0.21%

Real Asset:
Real Asset Index Fund. ER: 0.31%

Employer Stock:
**Company** Common Stock Fund. ER: 0.05%

The "Target Retirement Funds" are all 0.13% ER



EDIT:
I was only a part-time student in 2017. According to IRS.gov I am eligible for the credit.

updated estimated income numbers:
I estimate 8 pay periods.
I estimate about 23k income before anything taken out.
I will put 3,300 into an HSA this year so I will be left with about $19,700. and because of benefits it will knock me back down to about $19.5k
According to smartasset tax calculator I am looking at $17,147 after tax income with $2,553 total taxes.
I have set into motion a roth 401k contribution of 40% per pay period.
17147 * 0.40 = 6,858.8 contributed to roth 401k
I get 100% match up to 6%.
I am not sure which part of my income the 6% is coming from for the roth 401k. If it is from 19,700 then company match is 19,700 * 0.6 = 1182

TDR Breakdown:
https://www.dropbox.com/s/e3vniuz4ndrlkt7/TDR.png?dl=0

Fees:
https://www.dropbox.com/s/4xl4tghxmwd6kaq/Fees.png?dl=0
Last edited by error on Mon Sep 18, 2017 7:10 pm, edited 7 times in total.

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FiveK
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Re: New Job, First Time Investing, How-To

Post by FiveK » Sun Sep 17, 2017 1:27 pm

error wrote:
Sun Sep 17, 2017 12:46 pm
Questions
2. I chose to open an HSA, but I don't see where I would access/manage it. Will I get more information when I receive my Health insurance papers?
3. I had to put numbers in when creating my 401k so I chose 80/20 and chose just the S&P 500 index and "Intermediate Government Bond Index Fund". I have approximately 10 investments to choose from plus about 11 "target retirement funds" to choose from. How do I know which ones are worth investing in?
2. One might hope so, although if you have already opened it you should ask wherever you did that. Choosing HSA investment options has nothing to do with your insurance itself.
3. If you post what they are, and the fees for each, suggestions might be forthcoming. In general, the lowest fee option(s) consistent with your desired asset allocation will be the usual advice.

error
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Re: New Job, First Time Investing, How-To

Post by error » Sun Sep 17, 2017 4:17 pm

FiveK wrote:
Sun Sep 17, 2017 1:27 pm
2. One might hope so, although if you have already opened it you should ask wherever you did that. Choosing HSA investment options has nothing to do with your insurance itself.
3. If you post what they are, and the fees for each, suggestions might be forthcoming. In general, the lowest fee option(s) consistent with your desired asset allocation will be the usual advice.
I was confused because I see no way to access the HSA in any way. I assume That when my benefits start in October that I will learn more. I mentioned the insurance because I chose my insurance benefits at the same time so it was all lumped together in my mind.

As for the funds, I had posted the funds at the bottom of my post and I have updated them to include the Expense Ratios(ER). I left out the ones for targeting a retirement date.

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FiveK
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Re: New Job, First Time Investing, How-To

Post by FiveK » Sun Sep 17, 2017 4:28 pm

error wrote:
Sun Sep 17, 2017 4:17 pm
As for the funds, I had posted the funds at the bottom of my post and I have updated them to include the Expense Ratios(ER). I left out the ones for targeting a retirement date.
For someone just starting (and even for those much more advanced) a "fund of funds" such as a target date fund can be a fine choice. Pick one with a current stock/bond ratio of ~80/20, 90/10, or so, and check back in ~10 years to see if you want to change. :)

livesoft
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Re: New Job, First Time Investing, How-To

Post by livesoft » Sun Sep 17, 2017 4:42 pm

error wrote:
Sun Sep 17, 2017 12:46 pm
I have approximately 10 investments to choose from plus about 11 "target retirement funds" to choose from. How do I know which ones are worth investing in?
I know young people like to do everything on the internet and perhaps even their cell phone, but it is time to step back and read some books. #adulting

Check the reading list associated with this forum and please tell me which 3 books you are going to read first. Thanks!
Wiki This signature message sponsored by sscritic: Learn to fish.

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BL
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Re: New Job, First Time Investing, How-To

Post by BL » Sun Sep 17, 2017 4:54 pm

You did a fine job picking those 2 funds. A Target fund would be fine as well. Just pick one close to the bond % you choose.

Here is a great starter booklet you might like:
https://www.etf.com/docs/IfYouCan.pdf

You have until April to fund your Roth IRA at a low-cost brokerage like Vanguard or Fidelity.

Some of us choose to save the HSA for retirement since you pay no taxes of any kind on it now, including SS, which is both a positive and a negative. Then you can use it free for medical or like a trad. IRA with ordinary taxes.

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dratkinson
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Re: New Job, First Time Investing, How-To

Post by dratkinson » Sun Sep 17, 2017 5:06 pm

BH New Job, First Time Investing, How-To

Seems like a reasonable start.



Some things to think about to refine (more simplicity, less work) your investing strategy.

Asset allocation. For new young investors with unknown risk tolerance, it's recommended you being with 25-30% bonds. Why? More bonds will provide more stability during your first market crash/correction, while you are learning your true risk tolerance. If during your first market crash/correction:
--You worry so much that you sell stocks, then you need more bonds.
--You worry, but don't sell stocks, then your bond allocation is about right.
--You saw the crash/correction as a stock-buying opportunity, then you can have less bonds.


Target date retirement funds. Are all-in-one funds (stock + bond, US + international) and self-managing.
--Meaning you don't need to think about them as they rebalance/manage themselves.
--Using them ensures you will have fewer problems should you decide in future to TLH (tax-loss harvest).
--Recommended if they are low-cost (only a few basis point more expensive than your S&P500 index option).

Questions
Who provider all your 401k options (Fidelity, Vanguard,...)? Or what are all of their symbols?
What are your TDR fund options and ERs?


International allocation. The recommended allocation range is 0-50% of equities. Believe Mr Bogle now accepts ~20% of equities for those going this route.

As target date retirement funds take care of their international allocation for you, your only task is to decide if you want an international allocation after you start investing in taxable.

Disclosure. I have a small allocation to international in taxable so I, hopefully, have something cheap to buy when I need to buy equities and the US is high.
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

jcerickson
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Re: New Job, First Time Investing, How-To

Post by jcerickson » Sun Sep 17, 2017 5:10 pm

[/quote]
I was confused because I see no way to access the HSA in any way. I assume That when my benefits start in October that I will learn more. I mentioned the insurance because I chose my insurance benefits at the same time so it was all lumped together in my mind.
[/quote]

Hi error,

I handle the Insurance and HSA enrollment process at the small company I work for. The way it works with our benefits (United Healthcare and Optum HSA) is that once your insurance benefits begin, you will be issued a UHC insurance card. You then take that insurance card and use it to help you enroll for an Optum HSA account on-line. Once the HSA is set up, you would provide HR with the account number and your desired payroll deduction amount.

Additionally, since our Optum HSA has an investment option, you would go to the HSA website (the company has no involvement with your account decisions, such as investment choices) and specify what amount of cash you want to keep in the HSA and choose how you want to invest the excess funds. We are required to meet the $2,000 cash minimum before investing but can automatically invest after that.

error
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Re: New Job, First Time Investing, How-To

Post by error » Sun Sep 17, 2017 5:28 pm

Livesoft,
I already read The Bogleheads’ Guide to Investing.
I am super swamped with learning for work. All my free time is going into learning the things I need to do my job. I won't have time to read anything else for probably at least a month.

BL,
At least for the options available to me in the 401k plan, The expense ratio of all the target date funds is 0.13% vs the 0.08% for the bond fund I chose. That is a 62.5% increase in expense ratio. maybe it doesn't matter since 0.13 is still pretty low.

I plan to fully fund the HSA for its triple tax advantage. I never go to the doctor, so I don't see me needing it soon(knock on wood). I might also go the route of saving receipts to pay myself back in retirement. But that seems like a lot of work.

dratkinson,
Who provider all your 401k options (Fidelity, Vanguard,...)? Or what are all of their symbols?
My 401k is with Voya.
If by provider you mean Investment Manager then I see "BlackRock" for my bond options.
I see "Invesco Advisors" for stable value option.
I see "State Street Global Advisors" for the other options.

What are your TDR fund options and ERs?
All TDR have a ER of 0.13%. The S&P option goes as low as 0.05, Bonds as low as 0.08.
the target dates begin in 2015 and advance in 5 year increments to target retirement of 2060.
The TDRs have an "Asset Class" of Asset Allocation(Stocks, Bonds, Real Assets)

jcerickson,
Thanks for clarification.

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BL
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Re: New Job, First Time Investing, How-To

Post by BL » Sun Sep 17, 2017 5:58 pm

You seem to be pretty good at math so compare $ between 0.08% and 0.13% for the amount you will contribute in a year, for example. I think you would find it pretty insignificant, and could stick with other reasons for your fund choices. Maybe when you get to 6 digits it will start being somewhat meaningful. (Your NAV will bounce up and down a percent or more or less sometimes daily.)

You are fortunate to have so many low-cost choices.

error
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Re: New Job, First Time Investing, How-To

Post by error » Sun Sep 17, 2017 6:37 pm

I'm ok at math, but not very good at financial type of math. So I found this little calculator online:
http://www.begintoinvest.com/expense-ratio-calculator/

if I compare 0.08 and 0.13 with my numbers:
initial investment = 0
annual addition = 18,000
Investment Return = 7%
Duration = 37

I get these Costs(the amount I lose):
53,419.27 vs 86,254.5
A difference of 32,835.22

Just thought I would include it for people who want to compare the impact of ER.
And yeah, its not much of a difference in the long run assuming this calculator is accurate.

And yes BL, When I was looking up the details of my companies 401k people really seemed to like the low costs, one person said they had the lowest costs they had seen before.

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FiveK
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Re: New Job, First Time Investing, How-To

Post by FiveK » Sun Sep 17, 2017 8:17 pm

error wrote:
Sun Sep 17, 2017 6:37 pm
I get these Costs(the amount I lose):
53,419.27 vs 86,254.5
A difference of 32,835.22

Just thought I would include it for people who want to compare the impact of ER.
And yeah, its not much of a difference in the long run assuming this calculator is accurate.
Correct. You end up with $2.8MM either way:
Image

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BolderBoy
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Re: New Job, First Time Investing, How-To

Post by BolderBoy » Sun Sep 17, 2017 11:02 pm

error wrote:
Sun Sep 17, 2017 12:46 pm
Paid bi-weekly I will experience 8 pay periods this year. Each pay period $550 is deducted an placed in HSA.
Won't that put you over the limit for you, this year? Single and under age 55 y/o the max contribution for the year is $3400.

You are allowed the full $3400 contribution as long as you remain in a HDHP for the following 12 months (you should easily meet this requirement as a new worker, I think.)
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

error
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Re: New Job, First Time Investing, How-To

Post by error » Mon Sep 18, 2017 6:18 am

BolderBoy wrote:
Sun Sep 17, 2017 11:02 pm
error wrote:
Sun Sep 17, 2017 12:46 pm
Paid bi-weekly I will experience 8 pay periods this year. Each pay period $550 is deducted an placed in HSA.
Won't that put you over the limit for you, this year? Single and under age 55 y/o the max contribution for the year is $3400.

You are allowed the full $3400 contribution as long as you remain in a HDHP for the following 12 months (you should easily meet this requirement as a new worker, I think.)
Yes, that would put me over the limit if I was enrolled now in the HSA. But my benefits don't kick in until October. I was wondering that too after I realized I would get 8 instead of 6 pay periods. That is the conclusion I came to. My company will contribute $100 to the HSA, so I need to get 3,300 in there. When setting up the HSA payment I was only able to select the amount I want to contribute and the system automatically decided how much to take out to meet that goal. It decided on 550.

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teen persuasion
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Re: New Job, First Time Investing, How-To

Post by teen persuasion » Mon Sep 18, 2017 7:20 am

Contributions
I don't have exact figures. Paid bi-weekly I will experience 8 pay periods this year. Each pay period $550 is deducted an placed in HSA. 40% of pay is placed in r401k. I estimate about 23k income before anything taken out. which means about 3k per pay period. I estimate 18,726 after taking into account HSA and benefits. 18,726 * 0.4 = 7,490 (estimated r401k contribution for the year)
OP, just wanted to point out that retirement contributions as a percentage are usually a percentage of gross income, not after other withholding. So 40% of $23k is probably $9200.

I wish my DH's options thru Voya were as inexpensive as yours. Your choices look great to me!

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BolderBoy
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Re: New Job, First Time Investing, How-To

Post by BolderBoy » Mon Sep 18, 2017 12:02 pm

error wrote:
Mon Sep 18, 2017 6:18 am
BolderBoy wrote:
Sun Sep 17, 2017 11:02 pm
error wrote:
Sun Sep 17, 2017 12:46 pm
Paid bi-weekly I will experience 8 pay periods this year. Each pay period $550 is deducted an placed in HSA.
Won't that put you over the limit for you, this year? Single and under age 55 y/o the max contribution for the year is $3400.

You are allowed the full $3400 contribution as long as you remain in a HDHP for the following 12 months (you should easily meet this requirement as a new worker, I think.)
Yes, that would put me over the limit if I was enrolled now in the HSA. But my benefits don't kick in until October. I was wondering that too after I realized I would get 8 instead of 6 pay periods. That is the conclusion I came to. My company will contribute $100 to the HSA, so I need to get 3,300 in there. When setting up the HSA payment I was only able to select the amount I want to contribute and the system automatically decided how much to take out to meet that goal. It decided on 550.
Okay. Hopefully their accounting program is smart enough to know to stop at the $3300 mark.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

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dratkinson
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Re: New Job, First Time Investing, How-To

Post by dratkinson » Mon Sep 18, 2017 5:37 pm

I notice you are updating your old/first topic ("Starting my career on the right foot") with information that you are not providing here. Doing so is a disservice to you as those folks who have newly joined you here don't see those updates, so can't weight that information into their advice.


Based on additional information provided in your first/old topic, but not provided here:

Example. Money is fungible. Your additional information provided about your eligibility for the Savers Credit this year, means that benefit can easily offset the small extra expense of choosing a self-managing TDR fund, vs the lower cost of the discrete funds option. And will do so for many years to come. Why? Each basis point increase in ER per $18K/yr will cost you $1.80/yr (= 18K x .0001). Assuming your Savers Credit benefit for one year is $1K, then the $1.80 cost increase per $18K/yr in additional TDR ER is insignificant so not worth worrying about.

Example. Terminal wealth. The TDR vs discrete funds example shows you ending with ~$2.8M, whether you use a TDR fund or the discrete funds option. So if you need to spend more time improving your human capital (job knowledge, networking,...), then which option makes life easier for you: spending more time managing your investments or less, assuming the ~same terminal wealth?

Thumbnail synthesis of above. The TDR option is less work and the small extra cost is more than offset by the Savers Credit benefit (and for many years to come), allowing you to spend more time improving your human capital while your 401k runs on autopilot. (Ditto, if your HSA has a good TDR option.)



Bottom line. It's better for you to provide all of your information updates here, so those following this/your new topic see everything. We want to know that our advice is based on all of your information, and we assume it's provided here, so not gonna go looking elsewhere.

Anything less wastes your time and is a disservice to you. So don't do it to yourself.

Then you can decide what you want to do. We don't care if you choose a different route, only that you chose it based on the best advice we could provide. And to provide the best advice, we need all of your information, in one place. Here, in your current topic.
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

error
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Re: New Job, First Time Investing, How-To

Post by error » Mon Sep 18, 2017 6:42 pm

Teen persuasion,
Does it still come from gross if I am contributing to a roth 401k? I was not sure, but I assumed that since it is after tax money it would be a percentage of take home pay that is deposited.

BolderBoy,
It should be. The way it worked was that there was an area for me to specify how much money I wanted to contribute to the HSA this year. It knew the company was providing 100 and it wouldn't let me apply more than 3,300. It then said that it would "cost" me 550 per pay period. I'm pretty sure it worked it all out and will work out in the end.

dratkinson,
My sense time is all messed up lately. I thought I added that information today before I left for work, turns out it was yesterday afternoon. Anyway, I added it as an edit to the bottom of the Original Post. I will add the breakdown of the TDR for the 2060 fund.EDIT: I added an image of the Fund Breakdown in the OP


For TDR 2060:
Equity = 86.5%

State Street S&P 500 Index Fund: 35.9%
State Street Russell Small/Mid Cap Index Fund: 16%
State Street GI All Capp Equity ex US Index Fund: 34.6%

Fixed Income = 10%
State Street US Long Govt Bond Index Fund: 10%
State Street US Short-Term Govt/Credit Bond Index Fund: 0%
State Street US High Yield Bond Index: 0%
State Street US Bond Index Fund: 0%
State Street US Inflation Protected: 0%
State Street 1-10 Year TIPS Index Fund: 0%

Alternatives = 3.5%
State Street Global Real Estate Securities Index Fund: 0%
State Street Bloomberg Roll Select Commodity Index Fund: 3.5%

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teen persuasion
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Re: New Job, First Time Investing, How-To

Post by teen persuasion » Mon Sep 18, 2017 7:54 pm

error wrote:
Mon Sep 18, 2017 6:42 pm
Teen persuasion,
Does it still come from gross if I am contributing to a roth 401k? I was not sure, but I assumed that since it is after tax money it would be a percentage of take home pay that is deposited.
My experience has been that DH's 401k contributions are exactly 50% of his gross; then he has a $figure contributed to his HSA, and his portion of health insurance, dental, vision deducted. His FICA deduction is 7.65% of (gross - (HSA + health + dental + vision)). Fed and state taxes withheld are based on a smaller number yet (also subtract traditional 401k contributions), but actually subject to his W4 designations. The only thing that should be different for Roth 401k contributions would be that fed and state taxes would be based on NOT subtracting the 401k contributions.

Your employer doesn't actually know how much tax you will owe, they don't know if a spouse has income or not, if you have kids, etc. They deduct taxes based on your taxable income per paycheck extrapolated out to a year's income, and based on your W4's proxy for exemptions and such. This uncertainty makes it pretty hard for them to guess what x% of taxable (or whatever) would be. It's cleaner to just go with x% of gross.

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BL
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Re: New Job, First Time Investing, How-To

Post by BL » Tue Sep 19, 2017 1:26 pm

Since Saver's Credit is mentioned, I will add this for eligibility:
You can’t have been a full-time student during some part of any five calendar months in the tax year.

You can’t be claimed as a dependent on another person’s return.

error
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Re: New Job, First Time Investing, How-To

Post by error » Sun Sep 24, 2017 8:12 am

Quick question about Vanguard. I set up a Vanguard Roth IRA. I am in the process of trying to put money into the account, it's a fairly frustrating user experience. I assume I add money simply by buying funds, but I'm not sure.

Anyway, I thought that the main benefits of a Roth IRA over a 401k were the lower fees and greater selection. But I find that the fees are actually higher than with my 401k. I am wondering if I am using the site correctly or if that is just how it is. for comparison the Target Retirement Date 2016 fund in my 401k has an expense ratio of 0.13% whereas the Vanguard one is 0.16%. It's not a huge difference. I guess I didn't realize just how good of a deal I was getting with my 401k.

Is this boards advice still to buy a target retirement fund for my Roth IRA in addition to doing the same in the roth 401k?

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FiveK
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Re: New Job, First Time Investing, How-To

Post by FiveK » Sun Sep 24, 2017 10:46 am

error wrote:
Sun Sep 24, 2017 8:12 am
I guess I didn't realize just how good of a deal I was getting with my 401k.
But now you do, so that makes putting the IRS maximum into the 401k before moving to the IRA definitely a good plan.
Is this boards advice still to buy a target retirement fund for my Roth IRA in addition to doing the same in the roth 401k?
Really up to you. Calculate the cost of the target fund vs. the same asset allocation in individual funds (e.g., for a 0.05% difference with $10K invested, that's $5/yr) and decide if your time to rebalance is worth more or less than that.

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