Roth IRA strategy

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Phr0nes1s
Posts: 7
Joined: Tue Jul 10, 2018 10:10 am

Roth IRA strategy

Post by Phr0nes1s » Tue Jul 10, 2018 11:28 am

Hello everyone,

I just put $3,000 in a Roth IRA at TD Ameritrade and I'm looking for some advice on the mix of low cost ETF's I should invest in now that Vanguard is not on the commission-free ETF list. Because I have a 30+ year timeline my portfolio plan will start with 100% equities. I will max out the $5,500 2018 contribution limit as of December 2018. Please critique this portfolio plan and provide reasoning for any recommendations. Thank you in advance :happy

Age: 27
Account type: Roth IRA
2018 tax bracket: 22%
2018 monthly contribution plan: $500

Portfolio plan

ETF % of portfolio ER

SPTM 50 .03
SPSM 10 .05
SPYD 10 .07
SPDW 20 .05
SPEM 10 .04

ExitStageLeft
Posts: 797
Joined: Sat Jan 20, 2018 4:02 pm

Re: Roth IRA strategy

Post by ExitStageLeft » Tue Jul 10, 2018 2:07 pm

Welcome to the forum and congratulations on opening the IRA!

Your proposed plan is nice and compact, because each ETF has four letter in its abbreviation. Beyond that, I suppose they represent specific traded funds. It would be really helpful to know which they are. Please consider updating your post so that everyone else does not have to wonder as well.

JoeRetire
Posts: 1482
Joined: Tue Jan 16, 2018 2:44 pm

Re: Roth IRA strategy

Post by JoeRetire » Tue Jul 10, 2018 2:12 pm

Phr0nes1s wrote:
Tue Jul 10, 2018 11:28 am
I just put $3,000 in a Roth IRA at TD Ameritrade and I'm looking for some advice on the mix of low cost ETF's I should invest in now that Vanguard is not on the commission-free ETF list.
Why ETFs? Are you planning to day trade within your IRA?

asif408
Posts: 1416
Joined: Sun Mar 02, 2014 8:34 am
Location: Florida

Re: Roth IRA strategy

Post by asif408 » Tue Jul 10, 2018 2:17 pm

I would suggest these three only:

SPTM (50%)
SPDW (40%)
SPEM (10%)

That gives you US, developed ex-US, and emerging markets exposure at approximately world market cap. The others (small cap, high dividend) are not necessary and just bets on segments of the US stock market. Over the long term, you will get more diversification from exposure to many different markets around the world vs. betting on one segment of one country's market.

Phr0nes1s
Posts: 7
Joined: Tue Jul 10, 2018 10:10 am

Re: Roth IRA strategy

Post by Phr0nes1s » Tue Jul 10, 2018 2:21 pm

SPDR® Portfolio Total Stock Market ETF (SPTM) ------------- 50%
SPDR® Portfolio Small Cap ETF (SPSM) ------------------------ 10%
SPDR® Portfolio S&P 500® High Dividend ETF (SPYD) ------- 10%
SPDR® Portfolio Developed World ex-US ETF (SPDW) ------- 20%
SPDR® Portfolio Emerging Markets ETF (SPEM) -------------- 10%

Phr0nes1s
Posts: 7
Joined: Tue Jul 10, 2018 10:10 am

Re: Roth IRA strategy

Post by Phr0nes1s » Tue Jul 10, 2018 2:44 pm

JoeRetire wrote:
Tue Jul 10, 2018 2:12 pm
Phr0nes1s wrote:
Tue Jul 10, 2018 11:28 am
I just put $3,000 in a Roth IRA at TD Ameritrade and I'm looking for some advice on the mix of low cost ETF's I should invest in now that Vanguard is not on the commission-free ETF list.
Why ETFs? Are you planning to day trade within your IRA?
Buy and hold strategy with occasional rebalancing when necessary. Commission-free low ER ETFs are my choice instrument because I won't be day trading and my goal is to keep investment costs as low as possible over the long run.

Are there any other strategies you believe I should be considering?

Phr0nes1s
Posts: 7
Joined: Tue Jul 10, 2018 10:10 am

Re: Roth IRA strategy

Post by Phr0nes1s » Tue Jul 10, 2018 2:46 pm

ExitStageLeft wrote:
Tue Jul 10, 2018 2:07 pm
Welcome to the forum and congratulations on opening the IRA!

Your proposed plan is nice and compact, because each ETF has four letter in its abbreviation. Beyond that, I suppose they represent specific traded funds. It would be really helpful to know which they are. Please consider updating your post so that everyone else does not have to wonder as well.
SPDR® Portfolio Total Stock Market ETF (SPTM)
SPDR® Portfolio Small Cap ETF (SPSM)
SPDR® Portfolio S&P 500® High Dividend ETF (SPYD)
SPDR® Portfolio Developed World ex-US ETF (SPDW)
SPDR® Portfolio Emerging Markets ETF (SPEM)

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sometimesinvestor
Posts: 1201
Joined: Wed May 13, 2009 6:54 am

Re: Roth IRA strategy

Post by sometimesinvestor » Tue Jul 10, 2018 2:54 pm

I have little idea what markets are going to look like in 15 years but suggest that about that time you consider a bond position. of perhaps 10-20%

Phr0nes1s
Posts: 7
Joined: Tue Jul 10, 2018 10:10 am

Re: Roth IRA strategy

Post by Phr0nes1s » Tue Jul 10, 2018 3:01 pm

asif408 wrote:
Tue Jul 10, 2018 2:17 pm
I would suggest these three only:

SPTM (50%)
SPDW (40%)
SPEM (10%)

That gives you US, developed ex-US, and emerging markets exposure at approximately world market cap. The others (small cap, high dividend) are not necessary and just bets on segments of the US stock market. Over the long term, you will get more diversification from exposure to many different markets around the world vs. betting on one segment of one country's market.
Thank you for the explanation as to why you would stay away from the other funds.

Is there a reason you chose total US market exposure of only 50%? I understand I put that as my percentage for SPTM, but from what I understand I had additional US exposure in the Dividend and Small Cap fund and that total US exposure should usually be greater than 50%. Just trying to fully understand your suggestions. Thanks for your time!

Phr0nes1s
Posts: 7
Joined: Tue Jul 10, 2018 10:10 am

Re: Roth IRA strategy

Post by Phr0nes1s » Tue Jul 10, 2018 3:12 pm

sometimesinvestor wrote:
Tue Jul 10, 2018 2:54 pm
I have little idea what markets are going to look like in 15 years but suggest that about that time you consider a bond position. of perhaps 10-20%
Thank you for the reply. Is there a reason you chose 15 years? I understand as I approach retirement I won't want to take the same risk with 100% equities and that by listing an arbitrary number like 15 you are highlighting that risk shift, but what should I pay attention to in order to understand when the appropriate time to shift into more conservative holdings such as bonds should be?

asif408
Posts: 1416
Joined: Sun Mar 02, 2014 8:34 am
Location: Florida

Re: Roth IRA strategy

Post by asif408 » Tue Jul 10, 2018 3:18 pm

Phr0nes1s wrote:
Tue Jul 10, 2018 3:01 pm
asif408 wrote:
Tue Jul 10, 2018 2:17 pm
I would suggest these three only:

SPTM (50%)
SPDW (40%)
SPEM (10%)

That gives you US, developed ex-US, and emerging markets exposure at approximately world market cap. The others (small cap, high dividend) are not necessary and just bets on segments of the US stock market. Over the long term, you will get more diversification from exposure to many different markets around the world vs. betting on one segment of one country's market.
Thank you for the explanation as to why you would stay away from the other funds.

Is there a reason you chose total US market exposure of only 50%? I understand I put that as my percentage for SPTM, but from what I understand I had additional US exposure in the Dividend and Small Cap fund and that total US exposure should usually be greater than 50%. Just trying to fully understand your suggestions. Thanks for your time!
I chose that because that is close to the world market capitalization for stocks, and is (arguably) a good starting point for most people, though you'll find that is not a universal view here. If you prefer different percentages that is certainly your choice.

JoeRetire
Posts: 1482
Joined: Tue Jan 16, 2018 2:44 pm

Re: Roth IRA strategy

Post by JoeRetire » Tue Jul 10, 2018 3:33 pm

Phr0nes1s wrote:
Tue Jul 10, 2018 2:44 pm
JoeRetire wrote:
Tue Jul 10, 2018 2:12 pm
Phr0nes1s wrote:
Tue Jul 10, 2018 11:28 am
I just put $3,000 in a Roth IRA at TD Ameritrade and I'm looking for some advice on the mix of low cost ETF's I should invest in now that Vanguard is not on the commission-free ETF list.
Why ETFs? Are you planning to day trade within your IRA?
Buy and hold strategy with occasional rebalancing when necessary. Commission-free low ER ETFs are my choice instrument because I won't be day trading and my goal is to keep investment costs as low as possible over the long run.
Is there anything in your plan that requires ETFs rather than Mutual Funds?

Phr0nes1s
Posts: 7
Joined: Tue Jul 10, 2018 10:10 am

Re: Roth IRA strategy

Post by Phr0nes1s » Tue Jul 10, 2018 3:59 pm

JoeRetire wrote:
Tue Jul 10, 2018 3:33 pm
Phr0nes1s wrote:
Tue Jul 10, 2018 2:44 pm
JoeRetire wrote:
Tue Jul 10, 2018 2:12 pm
Phr0nes1s wrote:
Tue Jul 10, 2018 11:28 am
I just put $3,000 in a Roth IRA at TD Ameritrade and I'm looking for some advice on the mix of low cost ETF's I should invest in now that Vanguard is not on the commission-free ETF list.
Why ETFs? Are you planning to day trade within your IRA?
Buy and hold strategy with occasional rebalancing when necessary. Commission-free low ER ETFs are my choice instrument because I won't be day trading and my goal is to keep investment costs as low as possible over the long run.
Is there anything in your plan that requires ETFs rather than Mutual Funds?
I honestly don't know enough to confidently answer either yes or no, but from what I understand mutual funds typically have higher ERs, usually come with a load, and ETFs tend to be more tax efficient. This is what i've read, but again, I don't know enough to properly speak to this, which is why i'm here.

What mutual funds do you think are worth considering?

JoeRetire
Posts: 1482
Joined: Tue Jan 16, 2018 2:44 pm

Re: Roth IRA strategy

Post by JoeRetire » Tue Jul 10, 2018 4:12 pm

Phr0nes1s wrote:
Tue Jul 10, 2018 3:59 pm
I honestly don't know enough to confidently answer either yes or no, but from what I understand mutual funds typically have higher ERs, usually come with a load, and ETFs tend to be more tax efficient. This is what i've read, but again, I don't know enough to properly speak to this, which is why i'm here.
What funds "typically" charge for expense ratios doesn't matter. You are only choosing a limited set of funds. You should probably look at Mutual Funds and compare their expense ratios to their ETF equivalents.
What mutual funds do you think are worth considering?
Many are worth considering.

You've read about the proverbial Boglehead Three Fund Portfolio, right?
  • Vanguard Total Stock Market Index Fund (VTSMX)
  • Vanguard Total International Stock Index Fund (VGTSX)
  • Vanguard Total Bond Market Fund (VBMFX)

asif408
Posts: 1416
Joined: Sun Mar 02, 2014 8:34 am
Location: Florida

Re: Roth IRA strategy

Post by asif408 » Wed Jul 11, 2018 5:30 am

JoeRetire wrote:
Tue Jul 10, 2018 4:12 pm
What funds "typically" charge for expense ratios doesn't matter. You are only choosing a limited set of funds. You should probably look at Mutual Funds and compare their expense ratios to their ETF equivalents.
At TDAmeritade, the cheapest way to invest is with ETFs because they are commission free and significantly cheaper than the funds that are available there commission free, especially for someone starting out with just $3000.

ExitStageLeft
Posts: 797
Joined: Sat Jan 20, 2018 4:02 pm

Re: Roth IRA strategy

Post by ExitStageLeft » Wed Jul 11, 2018 2:17 pm

asif408 wrote:
Wed Jul 11, 2018 5:30 am
JoeRetire wrote:
Tue Jul 10, 2018 4:12 pm
What funds "typically" charge for expense ratios doesn't matter. You are only choosing a limited set of funds. You should probably look at Mutual Funds and compare their expense ratios to their ETF equivalents.
At TDAmeritade, the cheapest way to invest is with ETFs because they are commission free and significantly cheaper than the funds that are available there commission free, especially for someone starting out with just $3000.
You could also open a Roth IRA with Vanguard, Fidelity,or Schwab and purchase any of their mutual funds or ETFs with no commission. There's nothing wrong with your choice, but it isn't the only way to get invested in low-cost funds. If you're dead set on going with SPDR this may be your cheapest way to go, but if you are willing to consider some other fund providers you can also get there at about the same cost.

Fidelity will sell you iShares funds commission-free. So to emulate your portfolio you could consider

50% iShares Core S&P Total US Stock Mkt ETF (ITOT) (0.03%)
10% iShares Core S&P Small-Cap ETF (IJR) (0.07%)
10% iShares Core S&P 500 ETF (IVV) (0.04%)
20% iShares Core MSCI Total Intl Stk ETF (IXUS) (0.10%)
10% iShares Core MSCI Emerging Markets ETF (IEMG) (0.14%)

According to PortfolioVisualizer recent returns have been almost identical. you get a little more diversification with ITOT which has 3,449 stock holding compared to SPTM which has 2,763.

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Earl Lemongrab
Posts: 5235
Joined: Tue Jun 10, 2014 1:14 am

Re: Roth IRA strategy

Post by Earl Lemongrab » Wed Jul 11, 2018 3:57 pm

JoeRetire wrote:
Tue Jul 10, 2018 2:12 pm
Phr0nes1s wrote:
Tue Jul 10, 2018 11:28 am
I just put $3,000 in a Roth IRA at TD Ameritrade and I'm looking for some advice on the mix of low cost ETF's I should invest in now that Vanguard is not on the commission-free ETF list.
Why ETFs? Are you planning to day trade within your IRA?
I have all of my holdings outside of my 401(k) in ETFs. I do it so I can have the best ERs and use the custodian that works best for my situation. Nothing to do with day-trading. Someone has been reading too much anti-ETF FUD.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

JoeRetire
Posts: 1482
Joined: Tue Jan 16, 2018 2:44 pm

Re: Roth IRA strategy

Post by JoeRetire » Wed Jul 11, 2018 6:40 pm

Earl Lemongrab wrote:
Wed Jul 11, 2018 3:57 pm
JoeRetire wrote:
Tue Jul 10, 2018 2:12 pm
Phr0nes1s wrote:
Tue Jul 10, 2018 11:28 am
I just put $3,000 in a Roth IRA at TD Ameritrade and I'm looking for some advice on the mix of low cost ETF's I should invest in now that Vanguard is not on the commission-free ETF list.
Why ETFs? Are you planning to day trade within your IRA?
I have all of my holdings outside of my 401(k) in ETFs. I do it so I can have the best ERs and use the custodian that works best for my situation. Nothing to do with day-trading. Someone has been reading too much anti-ETF FUD.
Well that was why I asked the question.

Some ETFs have lower ERs that their mutual fund equivalents, some don't. Seeking the best ER makes sense.
I have no idea what your point about anti-ETF FUD means.

michaeljc70
Posts: 3293
Joined: Thu Oct 15, 2015 3:53 pm

Re: Roth IRA strategy

Post by michaeljc70 » Wed Jul 11, 2018 7:03 pm

I moved money from Vanguard to TDA and went with the SPTM. Very low ER.

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