Advice for 20 year old Roth IRA investment.

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
rai
Posts: 1196
Joined: Tue Apr 06, 2010 7:11 am

Advice for 20 year old Roth IRA investment.

Post by rai » Tue May 14, 2019 9:37 am

My child will be making ~$12K for summer internship no loans or obligations. She has no need for income other than pocket money and I figure she can safely put $6K into a Roth IRA without any reason to take money out until she retires.

I wanted to get advice on best fund that she can own for the next 30+ years.

I was thinking just keep it simple and buy 100% VTI (Vanguard Total Stock Market index) or the comparable MF.

Two questions:

1) Assuming she goes for TSM index would it make any difference if was to get MF or ETF with dividends reinvested? Edit was looking maybe ETF has lower ER than the MF?

2) Any need or desire to get fancy with picking foreign stock or bond index at this time as she is 20 years old and should be invested for the next 30-40 years and can always add those at a later time.

Thanks
"Life is what happens to you while you're busy making other plans" - John Lennon. | | "You say that money, isn't everything | But I'd like to see you live without it." - Silverchair

bloom2708
Posts: 6221
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Advice for 20 year old Roth IRA investment.

Post by bloom2708 » Tue May 14, 2019 10:29 am

I did Vanguard Total World Stock index (vtwsx) for our 19 year old who is working and could fund her Roth.

We did the ETF with the lower starting investment point. Reinvest the dividends. Let it ride. Revisit when they are 35.
"We are not here to agree with you; we are here to provoke thoughtfulness." Unknown Boglehead

Silence Dogood
Posts: 915
Joined: Tue Feb 01, 2011 9:22 pm

Re: Advice for 20 year old Roth IRA investment.

Post by Silence Dogood » Tue May 14, 2019 10:36 am

I recommend a Vanguard Target Retirement fund. Initial investment of $1,000, owns both domestic and foreign stocks/bonds.

Don't worry about small differences in expense ratio.

I would also recommend that you let her do this on her own. I know that you are only trying to do what is best for her, but I think that, in the long-run, what is best for her is to learn how to manage her finances on her own (now that's she's an adult).

b42
Posts: 312
Joined: Thu Apr 11, 2013 7:00 pm

Re: Advice for 20 year old Roth IRA investment.

Post by b42 » Tue May 14, 2019 10:40 am

When I was 19 I started a Roth IRA and put $3k into the Vanguard Total US Stock Index (mutual fund). I'd go this route if she wants to eventually manage her own portfolio.

For my sister who has no interest in investing, the choice was easy. All deposits go to a Vanguard Target Date fund.

northtexan
Posts: 175
Joined: Mon Jul 11, 2016 8:11 pm

Re: Advice for 20 year old Roth IRA investment.

Post by northtexan » Tue May 14, 2019 10:40 am

I personally have VTI in my Roth IRA. I am also around the same age as your daughter. I like to have VTI since there is a lot of upside and its tax free gains, might as well get as much gains as possible in that account. I have forgone international or bonds in that account and have picked those up in other accounts to meet my AA.

Topic Author
rai
Posts: 1196
Joined: Tue Apr 06, 2010 7:11 am

Re: Advice for 20 year old Roth IRA investment.

Post by rai » Tue May 14, 2019 10:48 am

northtexan wrote:
Tue May 14, 2019 10:40 am
I personally have VTI in my Roth IRA. I am also around the same age as your daughter. I like to have VTI since there is a lot of upside and its tax free gains, might as well get as much gains as possible in that account. I have forgone international or bonds in that account and have picked those up in other accounts to meet my AA.
If stocks have greater potential gain best place is a Roth that can grow for the next 40+ years, was leaning away from bonds because of this reason.

It’s interesting to think about investing at a younger age, I’m 53 and have far greater invested but younger folks have far more years to compound investment.
"Life is what happens to you while you're busy making other plans" - John Lennon. | | "You say that money, isn't everything | But I'd like to see you live without it." - Silverchair

Silence Dogood
Posts: 915
Joined: Tue Feb 01, 2011 9:22 pm

Re: Advice for 20 year old Roth IRA investment.

Post by Silence Dogood » Tue May 14, 2019 10:57 am

rai wrote:
Tue May 14, 2019 10:48 am
It’s interesting to think about investing at a younger age, I’m 53 and have far greater invested but younger folks have far more years to compound investment.
Better to be inexperienced and make a mistake at 20, and learn from it, then to be inexperienced and make a mistake at 53.

MotoTrojan
Posts: 4527
Joined: Wed Feb 01, 2017 8:39 pm

Re: Advice for 20 year old Roth IRA investment.

Post by MotoTrojan » Tue May 14, 2019 10:59 am

Worry less about the most optimal option and more about what will help her learn about investing and set her up best for the future. I would think a 2065 (or later if they have those yet) Target Retirement fund would make the most sense. Something similar should be available to her when she gets her first full-time job with a 401k.

Eventually she may decide to bias her Roth towards equities but that can easily be changed at that time.

northtexan
Posts: 175
Joined: Mon Jul 11, 2016 8:11 pm

Re: Advice for 20 year old Roth IRA investment.

Post by northtexan » Tue May 14, 2019 12:04 pm

rai wrote:
Tue May 14, 2019 10:48 am
northtexan wrote:
Tue May 14, 2019 10:40 am
I personally have VTI in my Roth IRA. I am also around the same age as your daughter. I like to have VTI since there is a lot of upside and its tax free gains, might as well get as much gains as possible in that account. I have forgone international or bonds in that account and have picked those up in other accounts to meet my AA.
If stocks have greater potential gain best place is a Roth that can grow for the next 40+ years, was leaning away from bonds because of this reason.

It’s interesting to think about investing at a younger age, I’m 53 and have far greater invested but younger folks have far more years to compound investment.
I have been very lucky to be able to fund my Roth IRA to the extent that I have. Time is definitely the best asset that I have right now. In 40 years one could reasonably expect that 6k to be 96k.

fujiters
Posts: 223
Joined: Tue Mar 06, 2018 2:17 pm

Re: Advice for 20 year old Roth IRA investment.

Post by fujiters » Tue May 14, 2019 12:29 pm

MotoTrojan wrote:
Tue May 14, 2019 10:59 am
Worry less about the most optimal option and more about what will help her learn about investing and set her up best for the future. I would think a 2065 (or later if they have those yet) Target Retirement fund would make the most sense. Something similar should be available to her when she gets her first full-time job with a 401k.

Eventually she may decide to bias her Roth towards equities but that can easily be changed at that time.
+1. Target date funds are great for people who don't know anything about investing. A person can invest uniformly into one and find themselves with a sensible asset allocation at retirement even if they never end up modifying their holdings. Defaulting to a target date fund provides a good example for later new account set ups (401k/HSA/etc). If she learns enough to decide a target date fund isn't for her, it's easy for her to change. If she never looks into other options, she's still invested well.
“The purpose of the margin of safety is to render the forecast unnecessary.” -Benjamin Graham

Topic Author
rai
Posts: 1196
Joined: Tue Apr 06, 2010 7:11 am

Re: Advice for 20 year old Roth IRA investment.

Post by rai » Tue May 14, 2019 12:31 pm

northtexan wrote:
Tue May 14, 2019 12:04 pm
rai wrote:
Tue May 14, 2019 10:48 am
northtexan wrote:
Tue May 14, 2019 10:40 am
I personally have VTI in my Roth IRA. I am also around the same age as your daughter. I like to have VTI since there is a lot of upside and its tax free gains, might as well get as much gains as possible in that account. I have forgone international or bonds in that account and have picked those up in other accounts to meet my AA.
If stocks have greater potential gain best place is a Roth that can grow for the next 40+ years, was leaning away from bonds because of this reason.

It’s interesting to think about investing at a younger age, I’m 53 and have far greater invested but younger folks have far more years to compound investment.
I have been very lucky to be able to fund my Roth IRA to the extent that I have. Time is definitely the best asset that I have right now. In 40 years one could reasonably expect that 6k to be 96k.
Yep, a new car will probably cost $96K in 40 years but that’s still a great investment.
"Life is what happens to you while you're busy making other plans" - John Lennon. | | "You say that money, isn't everything | But I'd like to see you live without it." - Silverchair

Silence Dogood
Posts: 915
Joined: Tue Feb 01, 2011 9:22 pm

Re: Advice for 20 year old Roth IRA investment.

Post by Silence Dogood » Tue May 14, 2019 1:18 pm

fujiters wrote:
Tue May 14, 2019 12:29 pm
MotoTrojan wrote:
Tue May 14, 2019 10:59 am
Worry less about the most optimal option and more about what will help her learn about investing and set her up best for the future. I would think a 2065 (or later if they have those yet) Target Retirement fund would make the most sense. Something similar should be available to her when she gets her first full-time job with a 401k.

Eventually she may decide to bias her Roth towards equities but that can easily be changed at that time.
+1. Target date funds are great for people who don't know anything about investing. A person can invest uniformly into one and find themselves with a sensible asset allocation at retirement even if they never end up modifying their holdings. Defaulting to a target date fund provides a good example for later new account set ups (401k/HSA/etc). If she learns enough to decide a target date fund isn't for her, it's easy for her to change. If she never looks into other options, she's still invested well.
They are also great for people who know a lot about investing.

Silence Dogood
Posts: 915
Joined: Tue Feb 01, 2011 9:22 pm

Re: Advice for 20 year old Roth IRA investment.

Post by Silence Dogood » Tue May 14, 2019 2:21 pm

OP:

I started investing at 18. I am now in my late 20s.

I can't stress enough how important I think it is for you to include your daughter in these decisions.

Topic Author
rai
Posts: 1196
Joined: Tue Apr 06, 2010 7:11 am

Re: Advice for 20 year old Roth IRA investment.

Post by rai » Tue May 14, 2019 3:43 pm

Silence Dogood wrote:
Tue May 14, 2019 2:21 pm
OP:

I started investing at 18. I am now in my late 20s.

I can't stress enough how important I think it is for you to include your daughter in these decisions.
I will she's an accounting major so she will know a thing or two about taxes. Also she is the one that asked me for my advice because she know that I am a super saver. I just want to give her some advice and let her make her decision.

It's hard for someone in the 0% tax bracket to appreciate how much taxes are deducted and how much taxes are a part of life that tax shelters are the one advantage we have and a Roth is probably the top tax shelter (maybe a HSA?). Also it's hard for someone who is 20 to understand about saving for retirement (except she hears me talk about it), but to young people like 19-20 years old the farthest thing on their mind is saving for retirement that is 40 years in the future.

I have been earning the top tax rate for the last 22 years so every dime I can get into a tax shelter is sacred. I just don't know if young people appreciate that (as well the great benefits of having decades to grow) when I was younger Roth did not exist and when it did exist I was not able to contribute because I made too much money.

Heck some of my colleagues who are my age don't have a clue about retirement saving, we have a generous 401K and profit sharing plan yet some don't even make an effort to contribute.
"Life is what happens to you while you're busy making other plans" - John Lennon. | | "You say that money, isn't everything | But I'd like to see you live without it." - Silverchair

Silence Dogood
Posts: 915
Joined: Tue Feb 01, 2011 9:22 pm

Re: Advice for 20 year old Roth IRA investment.

Post by Silence Dogood » Tue May 14, 2019 4:08 pm

rai wrote:
Tue May 14, 2019 3:43 pm
Silence Dogood wrote:
Tue May 14, 2019 2:21 pm
OP:

I started investing at 18. I am now in my late 20s.

I can't stress enough how important I think it is for you to include your daughter in these decisions.
I will she's an accounting major so she will know a thing or two about taxes. Also she is the one that asked me for my advice because she know that I am a super saver. I just want to give her some advice and let her make her decision.

It's hard for someone in the 0% tax bracket to appreciate how much taxes are deducted and how much taxes are a part of life that tax shelters are the one advantage we have and a Roth is probably the top tax shelter (maybe a HSA?). Also it's hard for someone who is 20 to understand about saving for retirement (except she hears me talk about it), but to young people like 19-20 years old the farthest thing on their mind is saving for retirement that is 40 years in the future.

I have been earning the top tax rate for the last 22 years so every dime I can get into a tax shelter is sacred. I just don't know if young people appreciate that (as well the great benefits of having decades to grow) when I was younger Roth did not exist and when it did exist I was not able to contribute because I made too much money.

Heck some of my colleagues who are my age don't have a clue about retirement saving, we have a generous 401K and profit sharing plan yet some don't even make an effort to contribute.
A big motivation for me to learn about personal finances was witnessing poor financial decision-making by my parents.

I really, really, did not enjoy being poor. It's just not for me.

I can imagine that, for a young person who has never had to worry about money, it might be more difficult for them to be motivated enough to want to learn about personal finances.

I am happy to read that your daughter is motivated to learn. Knowledge really is power.

User avatar
Wiggums
Posts: 920
Joined: Thu Jan 31, 2019 8:02 am

Re: Advice for 20 year old Roth IRA investment.

Post by Wiggums » Wed May 15, 2019 4:33 pm

rai wrote:
Tue May 14, 2019 3:43 pm
Silence Dogood wrote:
Tue May 14, 2019 2:21 pm
OP:

I started investing at 18. I am now in my late 20s.

I can't stress enough how important I think it is for you to include your daughter in these decisions.
I will she's an accounting major so she will know a thing or two about taxes. Also she is the one that asked me for my advice because she know that I am a super saver. I just want to give her some advice and let her make her decision.

It's hard for someone in the 0% tax bracket to appreciate how much taxes are deducted and how much taxes are a part of life that tax shelters are the one advantage we have and a Roth is probably the top tax shelter (maybe a HSA?). Also it's hard for someone who is 20 to understand about saving for retirement (except she hears me talk about it), but to young people like 19-20 years old the farthest thing on their mind is saving for retirement that is 40 years in the future.

I have been earning the top tax rate for the last 22 years so every dime I can get into a tax shelter is sacred. I just don't know if young people appreciate that (as well the great benefits of having decades to grow) when I was younger Roth did not exist and when it did exist I was not able to contribute because I made too much money.

Heck some of my colleagues who are my age don't have a clue about retirement saving, we have a generous 401K and profit sharing plan yet some don't even make an effort to contribute.
What a great parent you are to be getting your daughter educated on investing. I do like the idea of a target fund in this case, but Vanguard total stock market or a balanced fund would be just as good.

Good luck to you and your daughter.

Topic Author
rai
Posts: 1196
Joined: Tue Apr 06, 2010 7:11 am

Re: Advice for 20 year old Roth IRA investment.

Post by rai » Wed May 15, 2019 5:07 pm

Thanks.

I educated myself from zero to hero but had a lot of hard knocks along the way.

I missed out a lot on my younger investments cashed out my small 401K to pay for higher education. Didn’t invest at all in tax deferred until was 32 years old, that’s a lot of water under the bridge. But might have had a different approach to paying for the education more loans. I wonder what that small 401k would have been worth now was maybe $10K back in 1989 iirc. I was never into index market funds until maybe the last 10-12 years ago so I was paying unnecessary fees and probably was way out of wack for risk.

Wish I knew what I know now when I was younger (as they say).
"Life is what happens to you while you're busy making other plans" - John Lennon. | | "You say that money, isn't everything | But I'd like to see you live without it." - Silverchair

User avatar
BL
Posts: 8943
Joined: Sun Mar 01, 2009 2:28 pm

Re: Advice for 20 year old Roth IRA investment.

Post by BL » Wed May 15, 2019 5:11 pm

I would suggest a free 16-page pdf written especially for her situation by a recommended writer, Dr. William Bernstein. He suggests the 3-fund portfolio which is the basic component of target date funds and similar balanced funds. Also cautions about folks out to get your money while "helping" you.
https://www.etf.com/docs/IfYouCan.pdf

Also a general reference for personal finance by Jane Bryant Quinn (see her website) would be great to either have on hand or picked up at the library or Amazon when needed.

Post Reply