Want to start with Roth IRA

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Tugaboo
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Want to start with Roth IRA

Post by Tugaboo » Mon Mar 05, 2012 3:31 am

I am a college student (23) working part-time, no student loans, and have some income to start retirement investing.
Looking at about $3000 into a Roth IRA, averaging hopefully 6-8%, low risk, over the long term, with flexibility to change
funds if necessary over time, but don't know where to start.
Suggestions needed.

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ObliviousInvestor
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Re: Want to start with Roth IRA

Post by ObliviousInvestor » Mon Mar 05, 2012 11:09 am

Welcome to the forum! :)

It's great that you have no debt and are getting started early.
Tugaboo wrote:averaging hopefully 6-8%, low risk, over the long term.
Unfortunately, this part is not possible. To earn returns in the 6-8% range, you would have to use high-risk investments (most likely: stocks). And there's no way to know ahead of time what type of return stocks will earn over any particular period. 6-8% may be a reasonable guess, but it's not a sure-thing.

You may want to start with the "investing start-up kit" on the Bogleheads wiki: http://www.bogleheads.org/wiki/Boglehea ... art-up_kit
Mike Piper, author/blogger

DVMResident
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Re: Want to start with Roth IRA

Post by DVMResident » Mon Mar 05, 2012 12:22 pm

+1 The wiki is great.

You get $5,000 per year for ROTH IRAs. Once the time passes, you no longer have access the previous years ROTH IRA.

You have until April to open a ROTH IRA for 2011. I think it'd be good to open the ROTH IRA for 2011 now, put it in the money market account (it's kind of like a savings account) just to hold, and wait to your more educated before deciding what to invest in. It can sit in the money market account as long as you like, years even.

There is no rush to choose investments, but you do have limited time to open the 2011 ROTH IRA.

When you're ready, you can use the money in the money market account to buy stocks.

Tugaboo
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Re: Want to start with Roth IRA

Post by Tugaboo » Tue Mar 06, 2012 2:18 am

How limited or flexible would I be in creating a portfolio of funds within the Roth with such a small amount invested?

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ObliviousInvestor
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Re: Want to start with Roth IRA

Post by ObliviousInvestor » Tue Mar 06, 2012 8:01 am

Tugaboo wrote:How limited or flexible would I be in creating a portfolio of funds within the Roth with such a small amount invested?
At Vanguard, many of the index funds have a $3,000 minimum, so that would be rather limiting here.

Both the LifeStrategy Funds and the Target Retirement Funds*, however, are "funds of funds" that hold diversified portfolios of:
-Vanguard Total Stock Market Index Fund,
-Vanguard Total International Stock Index Fund, and
-Vanguard Total Bond Market Index Fund.

So if you decided to go with one of those funds, you wouldn't necessarily need to add anything to it.

Alternatively, you could create a DIY portfolio using Vanguard ETFs at Vanguard Brokerage Services. (My own personal opinion though is that the all-in-one funds are usually easier to use, and they provide a sufficiently diversified portfolio for most investors.)

*If you decide you like the idea of the target retirement funds, be sure to pick based on the fund's underlying asset allocation (e.g., how much in stocks and how much in bonds) rather than based on the date in the name.
Mike Piper, author/blogger

Tugaboo
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Re: Want to start with Roth IRA

Post by Tugaboo » Sat Mar 10, 2012 11:34 pm

I like the idea of the Vanguard Target retirement funds. Do I just go online and ask for it?
Also, is there a time period before I can reallocate?
Also, would there be a penalty for rolling it over to another brokerage?

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ObliviousInvestor
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Re: Want to start with Roth IRA

Post by ObliviousInvestor » Sun Mar 11, 2012 12:37 am

Tugaboo wrote:I like the idea of the Vanguard Target retirement funds. Do I just go online and ask for it?
Yep. You'd open an account online, fund the account, then place the order for the fund of your choice online.
Tugaboo wrote:Also, is there a time period before I can reallocate?
No.
Tugaboo wrote:Also, would there be a penalty for rolling it over to another brokerage?
To the best of my knowledge, Vanguard does not charge a transfer-out fee. But I'm not 100% sure, as I've been very happy with Vanguard and have never felt any desire to move my account elsewhere. (I believe Vanguard's target retirement funds can only be held at Vanguard though.)

I'm curious: Why do you ask? If for some reason you don't think Vanguard is a good choice for the long haul, perhaps it would be better to start elsewhere.
Last edited by ObliviousInvestor on Sun Mar 11, 2012 1:51 am, edited 1 time in total.
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Tugaboo
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Re: Want to start with Roth IRA

Post by Tugaboo » Sun Mar 11, 2012 1:35 am

It is such a long haul, just want to make sure I have the option to consider alternatives for whatever reasons. Vanguard looks like a excellent consideration.

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Re: Want to start with Roth IRA

Post by MFT Abroad » Sun Mar 11, 2012 9:47 am

Tugaboo, i started investing with Vanguard in 1988 -- sometimes it seems like it was only a year or so ago. At the risk of sounding like one of your grandparents, I'd encourage you to think in terms of investing for the long haul and expect to make a few mistakes along the way; everyone does. 24 years later, i've invested with at least 5 different mutual fund companies. In some cases, the company made more off my money than I did. But I learned frm the mistakes and did my best to move on. You've already received some good counsel. If you want more advice, there'll be no shortage of it when the time comes. Best of success on your selection. I think you'll be glad you started with a well-rounded index fund with Vanguard after you've narrowed down the choices. If your choice is an informed one, then over the long haul you'll be fine. That's my view, anyway.

Tugaboo
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Re: Want to start with Roth IRA

Post by Tugaboo » Sun Mar 11, 2012 9:21 pm

Definitely appreciated everyone's comments reassuring me of the direction I would like to start with. Accessed the Vanguard target retirement fund link and liked the long term direction and guidance the fund managers provided. Thanks.

Tugaboo
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Re: Want to start with Roth IRA

Post by Tugaboo » Sat Mar 01, 2014 6:55 pm

Now that I've started with the Vanguard Target retirement Roth, and have accumulated the necessary emergency fund, want to invest my accumulated savings amount of about $7,000 into a liquid fund that earns at least 4%, yet fairly safe. Suggestions?

mnvalue
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Re: Want to start with Roth IRA

Post by mnvalue » Sat Mar 01, 2014 7:48 pm

Tugaboo wrote:Now that I've started with the Vanguard Target retirement Roth, and have accumulated the necessary emergency fund, want to invest my accumulated savings amount of about $7,000 into a liquid fund that earns at least 4%, yet fairly safe. Suggestions?
I think it's most useful to determine your risk-tolerance. Then, whatever return you get at that risk level is whatever you get. Assuming you're maxing out your Roth each year (the limits have gone up since 2012) and don't have access to any employer plans (401k, etc.), then this investment would have to go in a taxable account. A a virtually risk-free bank CD might be the way to go. You can find CDs with relatively low early withdrawal penalties, so they probably meet your definition of "liquid". If you need more liquidity than that, then a "high-yield" (online) savings account is the way to go. If you can take some more risk, a tax-exempt intermediate-term bond fund (e.g. VWITX) could be an option. (However, from time-to-time, there are above-market CD offers from places like PenFed. When those are available, they're going to be superior to an intermediate-term bond fund.)

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