Starting out- Roth IRA-ETF's

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Jmelo05
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Starting out- Roth IRA-ETF's

Post by Jmelo05 » Sun Oct 06, 2019 2:27 pm

Hello all! I'm completely new to the investing world and have questions. I'm 27 years old and so far I have taken advantage of my company's match at 6% using target date fund. I JUST opened a Roth IRA with Vanguard and want to be aggressive with my portfolio, but I'm having a hard time understanding how the roth works as a whole after you put money into it. I was looking into the index funds but you need $3000 minimum for which I dont currently have so now I'm looking into ETF's since they have low expense ratios and are mucch cheaper to buy.

Are ETF's something that you can buy & hold ?

Are they a good idea for the long run?

Can I reinvest into a index fund once I have enough ?


As a young investor I would appreciate any help :happy

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samsoes
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Re: Starting out- Roth IRA-ETF's

Post by samsoes » Sun Oct 06, 2019 3:03 pm

Absolutely! ETF's are ideal for a Roth, especially if you can't make the Vanguard Mutual fund minimum. At your age, put 100% into VTI (Vanguard Total Stock Market ETF), which has an amazingly low ER of 0.03%. It tracks the CRSP US Total Market Index.

https://investor.vanguard.com/etf/profile/VTI

Holding VTI is perfectly fine for the long haul.
Welcome to the forum, by the way. :sharebeer
"Happiness Is Not My Companion" - Gen. Gouverneur K. Warren. | (Avatar is the statue of Gen. Warren atop Little Round Top @ Gettysburg National Military Park.)

shess
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Re: Starting out- Roth IRA-ETF's

Post by shess » Sun Oct 06, 2019 3:25 pm

Jmelo05 wrote:
Sun Oct 06, 2019 2:27 pm
Hello all! I'm completely new to the investing world and have questions. I'm 27 years old and so far I have taken advantage of my company's match at 6% using target date fund. I JUST opened a Roth IRA with Vanguard and want to be aggressive with my portfolio, but I'm having a hard time understanding how the roth works as a whole after you put money into it. I was looking into the index funds but you need $3000 minimum for which I dont currently have so now I'm looking into ETF's since they have low expense ratios and are mucch cheaper to buy.
First thing to realize is that "It's all relative". In this case, I mean that it's all relative to your balance. If you have $1,000 invested, then a 5 basis-point difference in expense ratios is going to run you ... $.10/year. It is a real number, but it's not worth worrying all that much about, really. I definitely keep an eye on things, and always try to harvest any easy low-hanging fruit, but before putting in effort I always multiply things out and compare it to the cost of a coffee or lunch, because I'm not willing to put in all that much work to save the price of a latte. {$100/year, though? Sign me up!}

Being relative also implies that getting the exact right balance in your investments isn't a huge issue when starting out. Again, if you have $1,000 invested, then the difference between an 80/20 portfolio and a 60/40 portfolio is really not huge in an absolute sense, your portfolio will grow faster based on new funds you add than on what you're invested in. Eventually it will grow to be important, but for now, you can concentrate on just getting skin in the game. So maybe you could try Target Retirement 2065 ($1k minimum), or something similar. Since it's a Roth IRA, you won't have tax consequences later when you switch to something you'd prefer to be in, but at least you're in the market meanwhile

Changing your mutual-fund investment selection is SUPER EASY. You login, click a few times, and at the next close you'd be switched between mutual funds. IMHO, mutual funds are cleaner for new investors. You can easily be 100% invested, and you don't have to worry about whether you have cash in the account to buy 26 shares or 27 shares. I keep all of my IRA and 401k accounts in mutual funds, while my taxable accounts are in ETFs.

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ruralavalon
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Re: Starting out- Roth IRA-ETF's

Post by ruralavalon » Sun Oct 06, 2019 3:44 pm

Welcome to the forum :) .

Jmelo05 wrote:
Sun Oct 06, 2019 2:27 pm
Hello all! I'm completely new to the investing world and have questions. I'm 27 years old and so far I have taken advantage of my company's match at 6% using target date fund. I JUST opened a Roth IRA with Vanguard and want to be aggressive with my portfolio, but I'm having a hard time understanding how the roth works as a whole after you put money into it. I was looking into the index funds but you need $3000 minimum for which I dont currently have so now I'm looking into ETF's since they have low expense ratios and are mucch cheaper to buy.

Are ETF's something that you can buy & hold ?

Are they a good idea for the long run?

Can I reinvest into a index fund once I have enough ?


As a young investor I would appreciate any help :happy
Since you use a target date fund in your 401k, then I suggest also using a target date fund in your Roth IRA. This keeps everything very simple and allows all of your investments to be on autopilot.

When just starting out the most important investing decision you can make is to establish a high rate of of contributions.

The initial minimum investment for a Vanguard target date fund is $1,000. Later additions can be in any amount.

The tiny difference in expense ratio for Exchange Traded Funds (ETFs) is so small as to be meaningless.

Yes you could use ETFs for buy and hold investing, they can be good for the long run, and you could switch to traditional index funds later if you wish.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

lakpr
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Re: Starting out- Roth IRA-ETF's

Post by lakpr » Sun Oct 06, 2019 4:01 pm

In general, you do not want to invest in any bonds or bond mutual funds in your Roth IRA. The defining feature and advantage of Roth accounts is that the growth in those accounts is completely tax free at the time of withdrawal. Ideally, therefore you would want to stick those asset classes with highest expected growth in Roth : equities and to a lesser extent, REITs. No bonds

samsoes' reply above is spot on. Invest in VTI. Nothing else for now. You can think of diversifying into international equities or small cap etc after you have accumulated at least $50k assets through contributions and growth. I would expect it would take at least 6 years ($6k per year times 6 years, plus some growth) before you want to revisit your portfolio.

Blake7
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Re: Starting out- Roth IRA-ETF's

Post by Blake7 » Sun Oct 06, 2019 4:06 pm

Hi there. The nice thing about tax-sheltered accounts, such as an IRA, is you can move investments around inside the account without triggering current-year taxes from any investment gains. So I’d start with an ETF such as VTI. I’d also switch it to the VTSAX later once you have $3k, but you don’t have to. I just prefer a mutual fund over an ETF, as many do here. Do your best to contribute the full $6k into your Roth this year, and the maximum amount each year you can manage in the future. Having a Roth for tax-free withdrawals during retirement is an excellent plan that can help you manage your tax burden, amongst many other benefits that Roth’s offer!

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Wiggums
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Re: Starting out- Roth IRA-ETF's

Post by Wiggums » Sun Oct 06, 2019 4:17 pm

Blake7 wrote:
Sun Oct 06, 2019 4:06 pm
Hi there. The nice thing about tax-sheltered accounts, such as an IRA, is you can move investments around inside the account without triggering current-year taxes from any investment gains. So I’d start with an ETF such as VTI. I’d also switch it to the VTSAX later once you have $3k, but you don’t have to. I just prefer a mutual fund over an ETF, as many do here. Do your best to contribute the full $6k into your Roth this year, and the maximum amount each year you can manage in the future. Having a Roth for tax-free withdrawals during retirement is an excellent plan that can help you manage your tax burden, amongst many other benefits that Roth’s offer!
+1

Chrono Triggered
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Re: Starting out- Roth IRA-ETF's

Post by Chrono Triggered » Sun Oct 06, 2019 8:52 pm

Vanguard Total World should be the recommended option here. VTWAX for the mutual fund, VT for the ETF. I personally find mutual funds easier to deal with in tax-advantaged accounts but either option is fine.

retired@50
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Re: Starting out- Roth IRA-ETF's

Post by retired@50 » Sun Oct 06, 2019 11:24 pm

Jmelo05 wrote:
Sun Oct 06, 2019 2:27 pm
Hello all! I'm completely new to the investing world and have questions. I'm 27 years old and so far I have taken advantage of my company's match at 6% using target date fund. I JUST opened a Roth IRA with Vanguard and want to be aggressive with my portfolio, but I'm having a hard time understanding how the roth works as a whole after you put money into it. I was looking into the index funds but you need $3000 minimum for which I dont currently have so now I'm looking into ETF's since they have low expense ratios and are mucch cheaper to buy.

Are ETF's something that you can buy & hold ?

Are they a good idea for the long run?

Can I reinvest into a index fund once I have enough ?


As a young investor I would appreciate any help :happy
Yes to all three questions. Good for you, start small, and keep contributing. Once you get over $3,000 switch to a mutual fund to eliminate the bid/ask spread of ETFs. Mutual funds are convenient during the contribution phase of life. You can automate the purchases and you can dollar cost average with a fixed number of dollars every two weeks or month. Spreading contributions throughout the year makes good sense too. Best of luck.

nix4me
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Re: Starting out- Roth IRA-ETF's

Post by nix4me » Mon Oct 07, 2019 11:14 am

VTI for the win.

Topic Author
Jmelo05
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Re: Starting out- Roth IRA-ETF's

Post by Jmelo05 » Mon Oct 07, 2019 7:53 pm

samsoes wrote:
Sun Oct 06, 2019 3:03 pm
Absolutely! ETF's are ideal for a Roth, especially if you can't make the Vanguard Mutual fund minimum. At your age, put 100% into VTI (Vanguard Total Stock Market ETF), which has an amazingly low ER of 0.03%. It tracks the CRSP US Total Market Index.

https://investor.vanguard.com/etf/profile/VTI

Holding VTI is perfectly fine for the long haul.
Welcome to the forum, by the way. :sharebeer
What are your thoughts about VOO ? Arent they almost the same?

shess
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Re: Starting out- Roth IRA-ETF's

Post by shess » Mon Oct 07, 2019 8:11 pm

Jmelo05 wrote:
Mon Oct 07, 2019 7:53 pm
samsoes wrote:
Sun Oct 06, 2019 3:03 pm
Absolutely! ETF's are ideal for a Roth, especially if you can't make the Vanguard Mutual fund minimum. At your age, put 100% into VTI (Vanguard Total Stock Market ETF), which has an amazingly low ER of 0.03%. It tracks the CRSP US Total Market Index.

https://investor.vanguard.com/etf/profile/VTI

Holding VTI is perfectly fine for the long haul.
Welcome to the forum, by the way. :sharebeer
What are your thoughts about VOO ? Arent they almost the same?
IMHO for the purpose of building your minimum to an amount which gives you access to more funds, they're same-enough.

For an established portfolio, if someone had VOO and was wondering if they should convert to VTI and take the tax hit to do so, I'd probably say "Just stick with VOO". Or if their 401k had an S&P 500 fund but not total-market fund, I'd be fine with that. But in a tax-deferred account, or when making the initial choice of what to invest in, I think I'd want to see stronger arguments for what the positive value of VOO versus VTI would be.

mortfree
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Re: Starting out- Roth IRA-ETF's

Post by mortfree » Mon Oct 07, 2019 8:24 pm

VTI all the way.

Don’t get caught up in the bid ask spread. Just buy and let it ride. I like Limit orders for this.

I’m a few years older so my new plan for my Roth contributions is to go with VBIAX (Vanguard balanced Fund). My original Roth is invested in individual stocks and a few ETFs and Wellesley (pre-boglehead days)

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samsoes
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Re: Starting out- Roth IRA-ETF's

Post by samsoes » Wed Oct 09, 2019 9:05 am

Jmelo05 wrote:
Mon Oct 07, 2019 7:53 pm
samsoes wrote:
Sun Oct 06, 2019 3:03 pm
Absolutely! ETF's are ideal for a Roth, especially if you can't make the Vanguard Mutual fund minimum. At your age, put 100% into VTI (Vanguard Total Stock Market ETF), which has an amazingly low ER of 0.03%. It tracks the CRSP US Total Market Index.

https://investor.vanguard.com/etf/profile/VTI

Holding VTI is perfectly fine for the long haul.
Welcome to the forum, by the way. :sharebeer
What are your thoughts about VOO ? Arent they almost the same?
VOO consists of 500 securities, while VTI consists of almost 4000 securities, so VTI is more diversified. But since both are weighted by market capitalization (value of total shares outstanding, so they are top-heavy with the "biggest" companies), they are pretty darn close, performance-wise. They'd make great TLH partners when the time comes, due to the difference in construction.
"Happiness Is Not My Companion" - Gen. Gouverneur K. Warren. | (Avatar is the statue of Gen. Warren atop Little Round Top @ Gettysburg National Military Park.)

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