First Roth IRA Diversified Portfolio Question

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jb southport
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Joined: Wed Mar 21, 2018 1:38 pm

First Roth IRA Diversified Portfolio Question

Post by jb southport » Wed Mar 21, 2018 6:31 pm

Hello there,

I am completely new to investing and looking to start a Roth IRA. I have read the Bogleheads Guide to Investing (which was incredibly helpful) and would like to go with a diversified index fund portfolio, however I only have $3,000 to open the 2017 Roth with. I will be making max contributions for 2018 and forward ($5,500) but want to get started with the 3k before April 15th.

Ideally I would like to invest in Vanguard funds only, however, with the 3k entry limit on most of their funds, I'm pretty limited.

I like the diversification of the 2020 Target Retirement Fund (international stock and bond exposure, TIPS) and I was thinking about investing 2k into that, and then the other 1k into the Schwab Total Stock Market Index, which I think I can also buy via Vanguard. I have a moderate risk tolerance and am looking to have an asset allocation of about 60/40 stocks/bonds, with some flexibility to increase the stock component. I also like the idea of being invested internationally in both stocks and bonds.

Do you think these two funds and the $ allocation I have suggested seem like they would be a good fit with my risk tolerance/desired asset allocation?

Once I get more money into Vanguard, I will switch out the Schwab fund for the Vanguard equivalent, and also switch the 2020 Fund for the individual Vanguard Index Funds that it contains.

Another rookie question: Will I be hit with any fees when I change funds in my portfolio? I'd like to keep fees as low as possible, which is why I want to set up my account at Vanguard in the first place.

Thank you so much for any help/advice you can give. I am truly amazed at a what a valuable resource this forum is!

JB

rkhusky
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Re: First Roth IRA Diversified Portfolio Question

Post by rkhusky » Wed Mar 21, 2018 7:21 pm

jb southport wrote:
Wed Mar 21, 2018 6:31 pm
I like the diversification of the 2020 Target Retirement Fund (international stock and bond exposure, TIPS) and I was thinking about investing 2k into that, and then the other 1k into the Schwab Total Stock Market Index, which I think I can also buy via Vanguard. I have a moderate risk tolerance and am looking to have an asset allocation of about 60/40 stocks/bonds, with some flexibility to increase the stock component. I also like the idea of being invested internationally in both stocks and bonds.
The TR 2020 fund will get more conservative over time - in 2020 it will be 50% stock and in 2027 it will be 30% is stock. Is this what you want?

If you want a fixed 60/40 portfolio, take a look at Life Strategy Moderate Growth. The LS funds are the fixed allocation version of the TR funds.

Why do you want to add the Schwab fund? Is it because you want less international stock than is in the TR 2020 fund (40% of stock)? Because the TR 2020 fund already has a Total Stock fund and the Schwab fund would be redundant. If you want more stock, just choose a higher year for the TR fund. If you want TIPS, buy a LS or TR fund and add a TIPS fund, although I wouldn't get TIPS until you are 10 years from retirement.

IMO, TR 2020 is appropriate for someone planning to retire in 2020, or if conservative, in 2025 or 2030. Does that match your situation?

Frankly, I suggest putting all your funds into a TR or LS fund and stay there until you have at least $50K in the account. At this point, asset allocation is not as important as contributing as much as you can.

No, in general, you do not incur fees or taxes when switching funds within an IRA (or 401k). A few Vanguard funds have purchase fees, which are returned to the fund. Vanguard also restricts you from buying a fund online for 30 days after you have sold it. Both of these measures are to restrict frequent trading, which are detrimental to the fund's performance.

jn6474
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Joined: Wed Mar 21, 2018 8:46 am

Re: First Roth IRA Diversified Portfolio Question

Post by jn6474 » Wed Mar 21, 2018 7:35 pm

If you are looking to add stock allocation over time to this portfolio then a 2020 target date would likely not be appropriate. That is going to glide path away from stocks into bonds as time goes on slowly. Take a hard look at VBINX (this is 60/40 US in one fund) and then if you wanted to add additional stock and international exposure you can build that in with a second fund. Something like....
VBINX - 80%
VGTSX - 20%

As far as moving around in a Roth IRA, you'd never incur taxes through movement and theres not fees associated amongst the vanguard funds (unless you violate short term trading exceptions) but I wouldn't make it a habit to move around, especially because you're far more likely to get irrational at the wrong times and shift allocations out of failing markets (which is usually when you should be dumping money into them). Stay the course. :sharebeer

jb southport
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Re: First Roth IRA Diversified Portfolio Question

Post by jb southport » Wed Mar 21, 2018 9:40 pm

Thank you all so much for your thoughtful responses, I really appreciate it.

I had overlooked the Life Strategy Moderate Growth fund. I think a couple of weeks ago when I first started this research, I had checked the Morningstar rating for the fund, which was a three, and that had put me off, but as you say, it uses the same index funds as 2020 TR fund, with the exception of the TIPS, which I guess I can do without.

I had thought of the Schwab fund because I wanted to increase the US stock portion of the portfolio, but not increase the international portion, if that makes sense.

I am not planning to retire for another 20 years, so I do have some time, but not as much as I'd like!

I did consider VBINX but as it doesn't have much in the way of international stock/bond allocations, and I only have 3k to invest at the moment, it didn't quite fit with what I was looking for, but I agree, if I had the extra money, I would look closely at this and combining it with VGTSX. This might be something I do a little later in the process when I have more money and flexibility.

For now, I think I will take another look at the LS Moderate Growth fund.

Just one quick question: Any reason for me to look at the Star Fund? It seems to have good general asset allocation for me, but the fee is higher than the other funds I'm looking at, and it seems to be a managed fund, not a passive index fund. OK, maybe I just talked myself out of it!

Thanks again for your help!

JB

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mhadden1
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Re: First Roth IRA Diversified Portfolio Question

Post by mhadden1 » Wed Mar 21, 2018 10:31 pm

For a Vanguard Roth aimed at retirement in 20 years, I would use a target date fund aimed at 2040, or 2035 if the slightly lower volatility is more comforting. I would save as much as possible up to the limits, and honestly not pay that much attention until maybe 2030 or so.

I would not look at the other funds except as an educational process. Maybe later there will be a reason to do something different. That probably won't be for a good long time - maybe never!
Oh I can't, can I? That's what they said to Thomas Edison, mighty inventor, Thomas Lindberg, mighty flyer,and Thomas Shefsky, mighty like a rose.

rkhusky
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Re: First Roth IRA Diversified Portfolio Question

Post by rkhusky » Thu Mar 22, 2018 11:58 am

jb southport wrote:
Wed Mar 21, 2018 9:40 pm
I had overlooked the Life Strategy Moderate Growth fund. I think a couple of weeks ago when I first started this research, I had checked the Morningstar rating for the fund, which was a three, and that had put me off, but as you say, it uses the same index funds as 2020 TR fund, with the exception of the TIPS, which I guess I can do without.

I had thought of the Schwab fund because I wanted to increase the US stock portion of the portfolio, but not increase the international portion, if that makes sense.
Most here take the Morningstar ratings with a grain or two of salt. Even they have admitted there isn't much predictive power in them.

I would wait for a few years before doing any fine tuning, like adjusting the US/Int'l ratio. Wait until you have more funds in the portfolio and have done some more reading on investing.

jb southport
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Joined: Wed Mar 21, 2018 1:38 pm

Re: First Roth IRA Diversified Portfolio Question

Post by jb southport » Thu Mar 22, 2018 6:10 pm

Thanks again for your help and advice.

I am going to ignore the Morningstar low rating and go with the Life Strategy Moderate Growth fund. I did some more research today and it does seem that a lot of people don't take the Morningstar ratings too seriously.

And, as you suggest, I'm going to wait until I have more money invested and a higher comfort level before trying to put together my own portfolio of individual funds.

I understand the suggestion of the TR 2040 or 2035 funds, but their stock allocation is just too high for my risk tolerance right now.

Thanks again to you all for being so responsive and helpful. I truly appreciate it.

All the best,
JB

MotoTrojan
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Re: First Roth IRA Diversified Portfolio Question

Post by MotoTrojan » Thu Mar 22, 2018 7:24 pm

jb southport wrote:
Thu Mar 22, 2018 6:10 pm
Thanks again for your help and advice.

I am going to ignore the Morningstar low rating and go with the Life Strategy Moderate Growth fund. I did some more research today and it does seem that a lot of people don't take the Morningstar ratings too seriously.

And, as you suggest, I'm going to wait until I have more money invested and a higher comfort level before trying to put together my own portfolio of individual funds.

I understand the suggestion of the TR 2040 or 2035 funds, but their stock allocation is just too high for my risk tolerance right now.

Thanks again to you all for being so responsive and helpful. I truly appreciate it.

All the best,
JB
I think this is a great plan. It doesn't really help much to make your own portfolio until you have a taxable account. Do you have a 401k too? Until you max that and the Roth, don't worry about anything but a Fund of Funds (like Lifestrategy).

jb southport
Posts: 4
Joined: Wed Mar 21, 2018 1:38 pm

Re: First Roth IRA Diversified Portfolio Question

Post by jb southport » Thu Mar 22, 2018 8:26 pm

Thanks. I'm so happy I joined this forum, such good advice!

I don't currently have a 401k, I am self-employed, so setting up a SEP IRA or a solo 401k is my next goal, and I will probably get to that later in the year, and use the same fund in there too.

Thanks again,

JB

skyfallen
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Joined: Fri Mar 09, 2018 8:53 pm

Re: First Roth IRA Diversified Portfolio Question

Post by skyfallen » Thu Mar 22, 2018 10:50 pm

We recently opened 2 roth iras and made it a lazy portfolio.
1- 4 fund lazy portfolio 60/40 i will change it to 70/30 or 80/20
2- vti for now
Our goal is to max out and save for kids college.
In my understanding, VTI would be enough since it has enough of hedging but will see.

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