Roth IRA what to invest in and how

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
User avatar
FiveK
Posts: 16356
Joined: Sun Mar 16, 2014 2:43 pm

Re: Roth IRA what to invest in and how

Post by FiveK »

blwegrzyn wrote: Tue Jul 02, 2024 8:38 pm So, because i already helped to open roth ira and deposited test 100$ should i try to convert it to traditional ira or just open traditional and keep roth and then add some little amount within 5 years to avoid penalty?
Leave it for that person. There is no penalty for letting money grow within a Roth IRA.

Putting $100 in the other person's Roth IRA would also be good. That way when either reaches age 59.5, any money in that person's Roth IRA may be withdrawn without tax or penalty.
Topic Author
blwegrzyn
Posts: 31
Joined: Sun Jun 30, 2024 9:46 pm

Re: Roth IRA what to invest in and how

Post by blwegrzyn »

BL wrote: Tue Jul 02, 2024 8:41 pm
blwegrzyn wrote: Tue Jul 02, 2024 10:27 am

EDIT:
if i select any of below with target date it outcomes would be about the same?
American Funds Target Date Retirement
BlackRock LifePath Index
Fidelity Freedom Index
Pimco RealPath Blend
T. Rowe Price Retirement
T. Rowe Price Retirement Blend
One way to compare is to find the expense ratio (ER) for each. For instance, that might catch the very different cost of the two Fidelity Freedom Funds (one is Index, the other (easier to find) one is not and costs more.) You want to be sure to use the Index fund. I would guess most of the others cost more (higher ER).
When looking and comparing them all i see Fidelity Freedom is least expensive but not as much return as American Funds 2040 Target Date Retirement Fund® Class A (AAGTX). Does it mean that expenses and growth kind of balance and in the end the income would be very similar.
I also see recommended one is: T. Rowe Price Retirement 2040 Fund.

Still a little bit confused how this works and if there is actually any way to choose something better or it is all a gamble?
Topic Author
blwegrzyn
Posts: 31
Joined: Sun Jun 30, 2024 9:46 pm

Re: Roth IRA what to invest in and how

Post by blwegrzyn »

FiveK wrote: Tue Jul 02, 2024 8:45 pm
blwegrzyn wrote: Tue Jul 02, 2024 8:38 pm So, because i already helped to open roth ira and deposited test 100$ should i try to convert it to traditional ira or just open traditional and keep roth and then add some little amount within 5 years to avoid penalty?
Leave it for that person. There is no penalty for letting money grow within a Roth IRA.

Putting $100 in the other person's Roth IRA would also be good. That way when either reaches age 59.5, any money in that person's Roth IRA may be withdrawn without tax or penalty.
should that money be invested in any fund or just leave it there?
right now it is just contribution with no investment.
Topic Author
blwegrzyn
Posts: 31
Joined: Sun Jun 30, 2024 9:46 pm

Re: Roth IRA what to invest in and how

Post by blwegrzyn »

Johnnie wrote: Tue Jul 02, 2024 8:10 pm
blwegrzyn wrote: Mon Jul 01, 2024 10:09 am
Johnnie wrote: Mon Jul 01, 2024 9:49 am This person has two separate problems: No emergency fund, and no growth-oriented investments.
On the latter, he could do a whole lot worse than just sticking the whole growth allocation in the VG Total Market Fund, period. Simple and "clean."
Are you referring to this one: VTSMX ? You mean invest everything in it?
Yes and no.

The OP states that at age 50 this person has almost no emergency fund, which I read as he's practically penniless. That is the most dire and immediate threat to his future - and his present. It's an emergency; he's just one minor setback from landing on the street. A decent start on filling that hole is his highest priority.

When there's a little breathing room he can start investing in growth assets, meaning a stock mutual fund. And given the modest amounts in play, that should be the Total Market Fund, for reasons Bogleheads well understand.

Until the wolves have been chased well away from the door by a respectable pile of emergency fund cash, and the TMF balance is starting to look respectable, the emergency fund can stand-in as his "fixed-income" portfolio.

~~~~~~

ETA, as I mentioned, the OP should make sure this person understands the tradeoffs on when to claim Social Security, and the value of waiting. With so little time before retirement, distributions from his investment portfolio might help him wait an extra year or two before taking SS.
sorry nor sure if i understand correctly but my goal is to help them to:
- establish some emergency found meaning go from 4k to at least 10K.
- setup traditional ira and with some help of either myself or other friends tog get them at least to 8k max contribution.

not sure how this comment should be interpreted:
"When there's a little breathing room he can start investing in growth assets, meaning a stock mutual fund. And given the modest amounts in play, that should be the Total Market Fund, for reasons Bogleheads well understand."
FinancialDave
Posts: 1826
Joined: Thu May 26, 2011 9:36 pm

Re: Roth IRA what to invest in and how

Post by FinancialDave »

blwegrzyn wrote: Tue Jul 02, 2024 10:03 pm
FiveK wrote: Tue Jul 02, 2024 8:45 pm
blwegrzyn wrote: Tue Jul 02, 2024 8:38 pm So, because i already helped to open roth ira and deposited test 100$ should i try to convert it to traditional ira or just open traditional and keep roth and then add some little amount within 5 years to avoid penalty?
Leave it for that person. There is no penalty for letting money grow within a Roth IRA.

Putting $100 in the other person's Roth IRA would also be good. That way when either reaches age 59.5, any money in that person's Roth IRA may be withdrawn without tax or penalty.
should that money be invested in any fund or just leave it there?
right now it is just contribution with no investment.
It should be invested in your target date fund so it can be growing.
I love simulated data. It turns the impossible into the possible!
User avatar
FiveK
Posts: 16356
Joined: Sun Mar 16, 2014 2:43 pm

Re: Roth IRA what to invest in and how

Post by FiveK »

blwegrzyn wrote: Tue Jul 02, 2024 10:01 pm
BL wrote: Tue Jul 02, 2024 8:41 pm
blwegrzyn wrote: Tue Jul 02, 2024 10:27 am

EDIT:
if i select any of below with target date it outcomes would be about the same?
American Funds Target Date Retirement
BlackRock LifePath Index
Fidelity Freedom Index
Pimco RealPath Blend
T. Rowe Price Retirement
T. Rowe Price Retirement Blend
One way to compare is to find the expense ratio (ER) for each. For instance, that might catch the very different cost of the two Fidelity Freedom Funds (one is Index, the other (easier to find) one is not and costs more.) You want to be sure to use the Index fund. I would guess most of the others cost more (higher ER).
When looking and comparing them all i see Fidelity Freedom is least expensive but not as much return as American Funds 2040 Target Date Retirement Fund® Class A (AAGTX). Does it mean that expenses and growth kind of balance and in the end the income would be very similar.
I also see recommended one is: T. Rowe Price Retirement 2040 Fund.

Still a little bit confused how this works and if there is actually any way to choose something better or it is all a gamble?
It is somewhat of a gamble, particularly if the investor overreacts to short-term investment results - and in this case, short-term means anything up to several years or more. E.g., see all the short-term ups and downs in S&P 500 Index: Market Perspective Charts. It's much less of a gamble when looking long term, say 10+ years. Again, see that chart for one example.

What brokerage are they using for their IRAs? Fidelity, Schwab, and Vanguard are common suggestions.

Are they computer-literate enough to do things with their accounts online?
Topic Author
blwegrzyn
Posts: 31
Joined: Sun Jun 30, 2024 9:46 pm

Re: Roth IRA what to invest in and how

Post by blwegrzyn »

FiveK wrote: Tue Jul 02, 2024 10:40 pm
blwegrzyn wrote: Tue Jul 02, 2024 10:01 pm
BL wrote: Tue Jul 02, 2024 8:41 pm
blwegrzyn wrote: Tue Jul 02, 2024 10:27 am

EDIT:
if i select any of below with target date it outcomes would be about the same?
American Funds Target Date Retirement
BlackRock LifePath Index
Fidelity Freedom Index
Pimco RealPath Blend
T. Rowe Price Retirement
T. Rowe Price Retirement Blend
One way to compare is to find the expense ratio (ER) for each. For instance, that might catch the very different cost of the two Fidelity Freedom Funds (one is Index, the other (easier to find) one is not and costs more.) You want to be sure to use the Index fund. I would guess most of the others cost more (higher ER).
When looking and comparing them all i see Fidelity Freedom is least expensive but not as much return as American Funds 2040 Target Date Retirement Fund® Class A (AAGTX). Does it mean that expenses and growth kind of balance and in the end the income would be very similar.
I also see recommended one is: T. Rowe Price Retirement 2040 Fund.

Still a little bit confused how this works and if there is actually any way to choose something better or it is all a gamble?
It is somewhat of a gamble, particularly if the investor overreacts to short-term investment results - and in this case, short-term means anything up to several years or more. E.g., see all the short-term ups and downs in S&P 500 Index: Market Perspective Charts. It's much less of a gamble when looking long term, say 10+ years. Again, see that chart for one example.

What brokerage are they using for their IRAs? Fidelity, Schwab, and Vanguard are common suggestions.

Are they computer-literate enough to do things with their accounts online?
So basically those expanse ratios are important due to minimum investment amount possible if for example Minimum to Invest 
For American Funds 2040 Target Date Retirement Fund® Class A is
$250.00
U need to have minimum deduction monthly 250 to get 1
So if u start with 3000 , u get 12 and then u either get 1 for 250 or 2 for 500 every deduction
But with lower price ones (fidelity in this case) it is easier to do it as they cheaper and u have more flexibility in how much u can invest,
I wonder if there is ever any difference how this balances in long run , it seems more expensive ones have better returns.

Will review the link you provide, but need to get some rest from all this financial misery.
User avatar
FiveK
Posts: 16356
Joined: Sun Mar 16, 2014 2:43 pm

Re: Roth IRA what to invest in and how

Post by FiveK »

blwegrzyn wrote: Tue Jul 02, 2024 11:00 pm
FiveK wrote: Tue Jul 02, 2024 10:40 pm What brokerage are they using for their IRAs? Fidelity, Schwab, and Vanguard are common suggestions.

Are they computer-literate enough to do things with their accounts online?
So basically those expanse ratios are important due to minimum investment amount possible if for example Minimum to Invest 
For American Funds 2040 Target Date Retirement Fund® Class A is
$250.00
U need to have minimum deduction monthly 250 to get 1
So if u start with 3000 , u get 12 and then u either get 1 for 250 or 2 for 500 every deduction
But with lower price ones (fidelity in this case) it is easier to do it as they cheaper and u have more flexibility in how much u can invest,
I wonder if there is ever any difference how this balances in long run , it seems more expensive ones have better returns.

Will review the link you provide, but need to get some rest from all this financial misery.
After a good night's sleep, please see and respond to the questions at the top of the quoted section.

Expense ratios (see the linked article) operate "behind the scenes" and have nothing to do with minimum investment amounts.
Topic Author
blwegrzyn
Posts: 31
Joined: Sun Jun 30, 2024 9:46 pm

Re: Roth IRA what to invest in and how

Post by blwegrzyn »

FiveK wrote: Tue Jul 02, 2024 11:25 pm
blwegrzyn wrote: Tue Jul 02, 2024 11:00 pm
FiveK wrote: Tue Jul 02, 2024 10:40 pm What brokerage are they using for their IRAs? Fidelity, Schwab, and Vanguard are common suggestions.

Are they computer-literate enough to do things with their accounts online?
So basically those expanse ratios are important due to minimum investment amount possible if for example Minimum to Invest 
For American Funds 2040 Target Date Retirement Fund® Class A is
$250.00
U need to have minimum deduction monthly 250 to get 1
So if u start with 3000 , u get 12 and then u either get 1 for 250 or 2 for 500 every deduction
But with lower price ones (fidelity in this case) it is easier to do it as they cheaper and u have more flexibility in how much u can invest,
I wonder if there is ever any difference how this balances in long run , it seems more expensive ones have better returns.

Will review the link you provide, but need to get some rest from all this financial misery.
After a good night's sleep, please see and respond to the questions at the top of the quoted section.

Expense ratios (see the linked article) operate "behind the scenes" and have nothing to do with minimum investment amounts.
After reading that article about SP500 my conclusion is they work long term (at least thats how i understood it)
Would not that mean that investing in SP500 instead or Fidelity Freedom® Index 2040 Fund Investor Class would be in favor?

I think i understand now expense ratio, so technically its better to get those where expense ration is lower unless those with higher ratio would have much higher returns compared to cheap ones. Comparison graphs show better return on American Funds but how does it work in total when compared to Fidelity Freedom. Can you say who is a definite winner here or its still a gamble?

When it comes to minimum to invest with minimum investment amount you must have more funds to complete the investment.
For example if you want to invest in American Funds 2040 Target Date Retirement Fund® Class A the minimum is $250.00 where
Fidelity Freedom® Index 2040 Fund Investor Class has 0$ minimum so you can invest any amount you want (up to ira limit 8000) with Fidelity where with American Funds you must do it in multiples of minimum or just need to meet the minimum requirement?

Example:
American Funds:
First invest 3000 and then need to do minimum 250 bi-weekly, or any amount above 250
where
with Fidelity invest 3000 and then can do 200 bi-weekly or any amount.
User avatar
FiveK
Posts: 16356
Joined: Sun Mar 16, 2014 2:43 pm

Re: Roth IRA what to invest in and how

Post by FiveK »

What brokerage are they using for their IRAs? Fidelity, Schwab, and Vanguard are common suggestions.

Are they computer-literate enough to do things with their accounts online?
Topic Author
blwegrzyn
Posts: 31
Joined: Sun Jun 30, 2024 9:46 pm

Re: Roth IRA what to invest in and how

Post by blwegrzyn »

FiveK wrote: Wed Jul 03, 2024 12:03 pm What brokerage are they using for their IRAs? Fidelity, Schwab, and Vanguard are common suggestions.

Are they computer-literate enough to do things with their accounts online?
If i understand correctly you trying to point out that those people know what they doing so any selection would work?
User avatar
FiveK
Posts: 16356
Joined: Sun Mar 16, 2014 2:43 pm

Re: Roth IRA what to invest in and how

Post by FiveK »

blwegrzyn wrote: Wed Jul 03, 2024 7:49 pm
FiveK wrote: Wed Jul 03, 2024 12:03 pm What brokerage are they using for their IRAs? Fidelity, Schwab, and Vanguard are common suggestions.

Are they computer-literate enough to do things with their accounts online?
If i understand correctly you trying to point out that those people know what they doing so any selection would work?
I'm asking the questions because I don't know the answers.
Topic Author
blwegrzyn
Posts: 31
Joined: Sun Jun 30, 2024 9:46 pm

Re: Roth IRA what to invest in and how

Post by blwegrzyn »

FiveK wrote: Wed Jul 03, 2024 8:15 pm
blwegrzyn wrote: Wed Jul 03, 2024 7:49 pm
FiveK wrote: Wed Jul 03, 2024 12:03 pm What brokerage are they using for their IRAs? Fidelity, Schwab, and Vanguard are common suggestions.

Are they computer-literate enough to do things with their accounts online?
If i understand correctly you trying to point out that those people know what they doing so any selection would work?
I'm asking the questions because I don't know the answers.
I guess i am the last to know those answers that is why i was asking about those different funds etc. So much too learn.
Not much experience to know what is going on behind the scenes.
At least with all of your help here i can help a little.

So far my plan for that person is:
- prioritize establishing emergency account with minimum of 10K.
- keep roth ira and invest balance of $100 to FBIFX
- open traditional ira and invest initially 3000 to FBIFX and invest rest of allowed limit (8k) that is 5000 until the end of the year either via scheduled or manual contribution and trades.

I hope i did not miss anything important here and the fund i mentioned is correct one - FBIFX.

I myself will keep learning as i never spend much time on understanding any of this and just went with what workplace offered.
(limited by their selections)
User avatar
Johnnie
Posts: 634
Joined: Sat May 28, 2016 3:18 pm
Location: Michigan

Re: Roth IRA what to invest in and how

Post by Johnnie »

blwegrzyn wrote: Tue Jul 02, 2024 10:19 pm
Johnnie wrote: Tue Jul 02, 2024 8:10 pm
blwegrzyn wrote: Mon Jul 01, 2024 10:09 am
Johnnie wrote: Mon Jul 01, 2024 9:49 am This person has two separate problems: No emergency fund, and no growth-oriented investments.
On the latter, he could do a whole lot worse than just sticking the whole growth allocation in the VG Total Market Fund, period. Simple and "clean."
Are you referring to this one: VTSMX ? You mean invest everything in it?
Yes and no.

The OP states that at age 50 this person has almost no emergency fund, which I read as he's practically penniless. That is the most dire and immediate threat to his future - and his present. It's an emergency; he's just one minor setback from landing on the street. A decent start on filling that hole is his highest priority.

When there's a little breathing room he can start investing in growth assets, meaning a stock mutual fund. And given the modest amounts in play, that should be the Total Market Fund, for reasons Bogleheads well understand.

Until the wolves have been chased well away from the door by a respectable pile of emergency fund cash, and the TMF balance is starting to look respectable, the emergency fund can stand-in as his "fixed-income" portfolio.

~~~~~~

ETA, as I mentioned, the OP should make sure this person understands the tradeoffs on when to claim Social Security, and the value of waiting. With so little time before retirement, distributions from his investment portfolio might help him wait an extra year or two before taking SS.
sorry nor sure if i understand correctly but my goal is to help them to:
- establish some emergency found meaning go from 4k to at least 10K.
- setup traditional ira and with some help of either myself or other friends tog get them at least to 8k max contribution.

not sure how this comment should be interpreted:
"When there's a little breathing room he can start investing in growth assets, meaning a stock mutual fund. And given the modest amounts in play, that should be the Total Market Fund, for reasons Bogleheads well understand."
The classic Boglehead retirement portfolio is 60% stocks held in low-cost index funds, and 40% in fixed income assets, generally Treasury bonds. This generally presumes having a separate emergency fund to cover unexpected expenses without dipping into your tax-deferred retirement holdings.

To me $10,000 is at the low-end for an emergency fund. (I'm conservative, so I'm 50/50 stocks/bonds, plus a separate $50k emergency fund in a taxable account.)

If I were advising someone age-50 with just $4,000 to his name, but the ability to start making meaning contributions to a retirement fund, I would allocate 50% or 60% to a Total Stock Market Index fund (TSM) like Vangard's, and the balance in short-term Treasury bonds. Some here are using a money market fund like Vanguard's Federal Money Market fund as their sole fixed-income holding. That could make the latter do double-duty as an emergency fund (on top of the $10,000 already mentioned.)

I don't think anyone here would argue with TSM for the stock portion of that portfolio. For a person age 50 just starting to invest I can't see any reason to do anything else. (A few might say also put a wee bit in the Vanguard Total International Stock Fund.)
"I know nothing."
User avatar
Johnnie
Posts: 634
Joined: Sat May 28, 2016 3:18 pm
Location: Michigan

Re: Roth IRA what to invest in and how

Post by Johnnie »

Johnnie wrote: Fri Jul 05, 2024 2:30 pm
blwegrzyn wrote: Tue Jul 02, 2024 10:19 pm
Johnnie wrote: Tue Jul 02, 2024 8:10 pm
blwegrzyn wrote: Mon Jul 01, 2024 10:09 am
Johnnie wrote: Mon Jul 01, 2024 9:49 am This person has two separate problems: No emergency fund, and no growth-oriented investments.
On the latter, he could do a whole lot worse than just sticking the whole growth allocation in the VG Total Market Fund, period. Simple and "clean."
Are you referring to this one: VTSMX ? You mean invest everything in it?
Yes and no...
sorry nor sure if i understand correctly but my goal is to help them to:
- establish some emergency found meaning go from 4k to at least 10K.
- setup traditional ira and with some help of either myself or other friends tog get them at least to 8k max contribution.

not sure how this comment should be interpreted:
"When there's a little breathing room he can start investing in growth assets, meaning a stock mutual fund. And given the modest amounts in play, that should be the Total Market Fund, for reasons Bogleheads well understand."
I'm assuming that "8k max contribution" is $8k-a-year. If so that's not bad.

The classic Boglehead retirement portfolio is 60% stocks held in low-cost index funds, and 40% in fixed income assets, usually Treasury bonds. This generally presumes having a separate emergency fund to cover unexpected expenses without having to dip into your tax-deferred retirement fund holdings.

To me $10,000 is at the low-end for an emergency fund. (I'm conservative, so I'm 50/50 stocks/bonds, plus a separate $50k emergency fund in a taxable account - but I've been saving for a lot longer.)

I'm assuming this person plans to keep working to 65, or older if possible.

If I were advising someone age-50 with just $4,000 to his name, but the ability to start making meaningful contributions to a retirement fund, I would allocate 60% or more to a Total Stock Market Index fund (TSM) like Vangard's, and the balance to short-term Treasury bonds. Some here are using a money market fund like Vanguard's Federal Money Market fund as their sole fixed-income holding. That could make the latter do double-duty as a back-up emergency fund (on top of the $10,000 already mentioned.)

I don't think anyone here would argue with TSM for the stock portion of that portfolio. For a person age 50 just starting to invest I can't see any reason to do anything else. (A few might say also put a wee bit in the Vanguard Total International Stock Fund.)
"I know nothing."
Topic Author
blwegrzyn
Posts: 31
Joined: Sun Jun 30, 2024 9:46 pm

Re: Roth IRA what to invest in and how

Post by blwegrzyn »

Johnnie wrote: Fri Jul 05, 2024 2:30 pm
blwegrzyn wrote: Tue Jul 02, 2024 10:19 pm
Johnnie wrote: Tue Jul 02, 2024 8:10 pm
blwegrzyn wrote: Mon Jul 01, 2024 10:09 am
Johnnie wrote: Mon Jul 01, 2024 9:49 am This person has two separate problems: No emergency fund, and no growth-oriented investments.
On the latter, he could do a whole lot worse than just sticking the whole growth allocation in the VG Total Market Fund, period. Simple and "clean."
Are you referring to this one: VTSMX ? You mean invest everything in it?
Yes and no.

The OP states that at age 50 this person has almost no emergency fund, which I read as he's practically penniless. That is the most dire and immediate threat to his future - and his present. It's an emergency; he's just one minor setback from landing on the street. A decent start on filling that hole is his highest priority.

When there's a little breathing room he can start investing in growth assets, meaning a stock mutual fund. And given the modest amounts in play, that should be the Total Market Fund, for reasons Bogleheads well understand.

Until the wolves have been chased well away from the door by a respectable pile of emergency fund cash, and the TMF balance is starting to look respectable, the emergency fund can stand-in as his "fixed-income" portfolio.

~~~~~~

ETA, as I mentioned, the OP should make sure this person understands the tradeoffs on when to claim Social Security, and the value of waiting. With so little time before retirement, distributions from his investment portfolio might help him wait an extra year or two before taking SS.
sorry nor sure if i understand correctly but my goal is to help them to:
- establish some emergency found meaning go from 4k to at least 10K.
- setup traditional ira and with some help of either myself or other friends tog get them at least to 8k max contribution.

not sure how this comment should be interpreted:
"When there's a little breathing room he can start investing in growth assets, meaning a stock mutual fund. And given the modest amounts in play, that should be the Total Market Fund, for reasons Bogleheads well understand."
The classic Boglehead retirement portfolio is 60% stocks held in low-cost index funds, and 40% in fixed income assets, generally Treasury bonds. This generally presumes having a separate emergency fund to cover unexpected expenses without dipping into your tax-deferred retirement holdings.

To me $10,000 is at the low-end for an emergency fund. (I'm conservative, so I'm 50/50 stocks/bonds, plus a separate $50k emergency fund in a taxable account.)

If I were advising someone age-50 with just $4,000 to his name, but the ability to start making meaning contributions to a retirement fund, I would allocate 50% or 60% to a Total Stock Market Index fund (TSM) like Vangard's, and the balance in short-term Treasury bonds. Some here are using a money market fund like Vanguard's Federal Money Market fund as their sole fixed-income holding. That could make the latter do double-duty as an emergency fund (on top of the $10,000 already mentioned.)

I don't think anyone here would argue with TSM for the stock portion of that portfolio. For a person age 50 just starting to invest I can't see any reason to do anything else. (A few might say also put a wee bit in the Vanguard Total International Stock Fund.)
I got the person i am helping contributed 3000 at this point and need to decide how to invest this.
Initially i though it was as simple as just go with FBIFX.
Then i did run some simulation fidelity system has and the gave options of indexed and active fund: FBIFX vs FFFFX.
It seemed to me that active one could give better returns but was more expensive and index was safer and more conservative.

Then you replied and i am not sure anymore how to best help that person.
I understand they starting so late so possibly some other approach might be needed but also i cannot put at too risky situation.

From what you say is invest:
50% - The Vanguard Total Stock Market Index VTSAX (this one has 2500$ minimum investment so they could only contribute another time after they contribute another 2500$ to IRA)
50% - short-term Treasury bonds - what would be recommend options here? They would have only 500 left to contribute.
I guess another option is to increase to initial contribution to $4000 and then split it.

when you say:
"Some here are using a money market fund like Vanguard's Federal Money Market fund as their sole fixed-income holding. That could make the latter do double-duty as an emergency fund (on top of the $10,000 already mentioned."

If I understand correctly you mean to create separate individual account and invest there on its own and let the money grow hopefully to create an another emergency fund? on top of planned 10K savings.

It seems like that one VMFXX cannot be traded at Fidelity. Are there any good alternatives?
User avatar
Johnnie
Posts: 634
Joined: Sat May 28, 2016 3:18 pm
Location: Michigan

Re: Roth IRA what to invest in and how

Post by Johnnie »

Sorry, I should have noticed that you are dealing with Fidelity.

They have essentially the same thing as the Vanguard Total Market Fund, it's called the Fidelity® Total Market Index Fund, FSKAX
https://fundresearch.fidelity.com/mutua ... /315911693:

"Normally investing at least 80% of assets in common stocks included in the Dow Jones U.S. Total Stock Market Index, the Dow Jones U.S. Market Index, considered a total market index, represents the top 95% of the U.S. stock market based on market capitalization. The DWCF includes about 3,741 stocks that trade on the U.S. stock exchanges."
(This is a different index than the narrow Dow Jones Industrial Index.)

"Based on market capitalization" means that if Nvidia constitutes 7% of that broad Dow index, your fund holds the same proportion. If Podunk Inc. constitutes just 0.1% of the total Dow index, then 0.1% of your holdings are also in Podunk Inc.

As I think about this more, your guy's top priority is to build that emergency fund to $10,000 as soon as possible, so he's not so vulnerable to misfortune. This could be held in a simple Money Market Fund at Fidelity, not a tax-deferred IRA. Longer term, he should want something more like $20k+ in that.

I can't tell if "get them at least to 8k max contribution" means a one-time event or an annual contribution goal. Hopefully the latter.

If so, I would initially split the annual deposits between the emergency fund in a taxable MMF, and the Fidelity Total Market Index Fund held in a tax-deferred IRA. Initially, how much to each is a judgment call.

It looks like that FSKAX fund has no minimum balance, so he could also start contributing to it right away, a thousand here and a thousand there, while still building up the emergency fund. When he's got the $10k set aside for emergencies, then he can boost the amount going into the stock fund.

Time is also of the essence on building up that stock fund, because he's only got about 15 years left in his working life, and that money needs time to grow.

Oh, he should know that stock markets go down as well as up. It's likely that the market will plunge sometime in the coming years. Hopefully sooner rather than later, because then with the same amount of money he can buy more stocks.

Historically the market has always come back within a few years, but there's no guarantee. It's still the best bet for him to accumulate some wealth before retirement though. It would not be unusual for the market to double in 15 years, so if he was investing $10,000 a year he could easily retire with a $250,000+ portfolio.

PS.
I would not mess with that more complex "Fidelity Freedom® 2040 Fund" or "Fidelity Freedom Index 2040 Fund." I'm sure that John Bogle himself, the "patron saint" of Bogleheads, would say stick with the simple and pure FSKAX stock index fund.
Last edited by Johnnie on Sat Jul 06, 2024 7:00 pm, edited 1 time in total.
"I know nothing."
User avatar
Johnnie
Posts: 634
Joined: Sat May 28, 2016 3:18 pm
Location: Michigan

Re: Roth IRA what to invest in and how

Post by Johnnie »

dupe.
"I know nothing."
Topic Author
blwegrzyn
Posts: 31
Joined: Sun Jun 30, 2024 9:46 pm

Re: Roth IRA what to invest in and how

Post by blwegrzyn »

Johnnie wrote: Fri Jul 05, 2024 9:23 pm Sorry, I should have noticed that you are dealing with Fidelity.

They have essentially the same thing as the Vanguard Total Market Fund, it's called the Fidelity® Total Market Index Fund, FSKAX
https://fundresearch.fidelity.com/mutua ... /315911693:

"Normally investing at least 80% of assets in common stocks included in the Dow Jones U.S. Total Stock Market Index, the Dow Jones U.S. Market Index, considered a total market index, represents the top 95% of the U.S. stock market based on market capitalization. The DWCF includes about 3,741 stocks that trade on the U.S. stock exchanges."
(This is a different index than the narrow Dow Jones Industrial Index.)

"Based on market capitalization" means that if Nvidia constitutes 7% of that broad Dow index, your fund holds the same proportion. If Podunk Inc. constitutes just 0.1% of the total Dow index, then 0.1% of your holdings are also in Podunk Inc.

As I think about this more, your guy's top priority is to build that emergency fund to $10,000 as soon as possible, so he's not so vulnerable to misfortune. This could be held in a simple Money Market Fund at Fidelity, not a tax-deferred IRA. Longer term, he should want something more like $20k+ in that.

I can't tell if "get them at least to 8k max contribution" means a one-time event or an annual contribution goal. Hopefully the latter.

If so, I would initially split the annual deposits between the emergency fund in a taxable MMF, and the Fidelity Total Market Index Fund held in a tax-deferred IRA. Initially, how much to each is a judgment call.

It looks like that FSKAX fun has no minimum balance, so he could also start contributing to it right away, a thousand here and a thousand there, while still building up the emergency fund. When he's got the $10k set aside for emergencies, then he can boost the amount going into the stock fund.

Time is also of the essence on building up that stock fund, because he's only got about 15 years left in his working life, and that money needs time to grow.

Oh, he should know that stock markets go down as well as up. It's likely that the market will plunge sometime in the coming years. Hopefully sooner rather than later, because then with the same amount of money he can buy more stocks.

Historically the market has always come back within a few years, but there's no guarantee. It's still the best bet for him to accumulate some wealth before retirement though. It would not be unusual for the market to double in 15 years, so if he was investing $10,000 a year he could easily retire with a $250,000+ portfolio.

PS.
I would not mess with that more complex "Fidelity Freedom® 2040 Fund" or "Fidelity Freedom Index 2040 Fund." I'm sure that John Bogle himself, the "patron saint" of Bogleheads, would say stick with the simple and pure FSKAX stock index fund.

As I am going through the WIKi I see the fund you mentioned:
Fidelity® Total Market Index Fund

yet Bogle recommends on Wiki to include index bonds:
“John Bogle recommends a simple portfolio of only two funds for many investors: Vanguard Total Stock Market Index Fund and Total Bond Market Index Fund.[8]”

Any reason why you would not recommend bonds? Would not this be more secure knowing the person got not much time to save or this would slow down the growth and would not be as productive? I think you mentioned this option with earlier post.

I think somewhere on WIKI I read that lack of Bonds might cause surprises and unnecessary headaches when seeing market up and down?
Would not this also mean lack of diversified portfolio?

I convinced my friend to invest 8k in traditional iRA a year. (not just this year) on top of emergency fund.
Right now there is 3000$ to invest and possibly another 1000$ to start building solid emergency fund.

So it seems like good start with above would be:
Invest 3000$ to FXKAX in traditional IRA

I am not sure if I understand exactly what you mean by:
“This could be held in a simple Money Market Fund at Fidelity, not a tax-deferred IRA.”

Should one of below accounts be created:
Brokerage–The Fidelity Account®
or
Fidelity Cash Management Account

And invest $1000 in Money Market Fund? (What would be that?)
I see lots of options:
https://institutional.fidelity.com/app/ ... funds.html
User avatar
Johnnie
Posts: 634
Joined: Sat May 28, 2016 3:18 pm
Location: Michigan

Re: Roth IRA what to invest in and how

Post by Johnnie »

blwegrzyn wrote: Sat Jul 06, 2024 10:43 am
As I am going through the WIKi I see the fund you mentioned:
Fidelity® Total Market Index Fund

yet Bogle recommends on Wiki to include index bonds:
“John Bogle recommends a simple portfolio of only two funds for many investors: Vanguard Total Stock Market Index Fund and Total Bond Market Index Fund.[8]”

Any reason why you would not recommend bonds? Would not this be more secure knowing the person got not much time to save or this would slow down the growth and would not be as productive? I think you mentioned this option with earlier post.

I think somewhere on WIKI I read that lack of Bonds might cause surprises and unnecessary headaches when seeing market up and down?
Would not this also mean lack of diversified portfolio?

I convinced my friend to invest 8k in traditional iRA a year. (not just this year) on top of emergency fund.
Right now there is 3000$ to invest and possibly another 1000$ to start building solid emergency fund.

So it seems like good start with above would be:
Invest 3000$ to FXKAX in traditional IRA

I am not sure if I understand exactly what you mean by:
“This could be held in a simple Money Market Fund at Fidelity, not a tax-deferred IRA.”

Should one of below accounts be created:
Brokerage–The Fidelity Account®
or
Fidelity Cash Management Account

And invest $1000 in Money Market Fund? (What would be that?)
I see lots of options:
https://institutional.fidelity.com/app/ ... funds.html
The Fidelity Cash Management Account appears to be the same as the Fidelity Government Money Market Fund (SPAXX), with a couple bells-and-whistles in the former: "Free mobile check deposit and mobile Bill Pay; No annual fee debit/ATM card with ATM fee reimbursements; Free online Bill Pay; Free checkwriting; Free online transfers between your Fidelity accounts and bank accounts."

I'm guessing your guy's finances are simple enough that those things are not especially useful to him. Personally, I'd keep it simple and just get the Government Money Market Fund (SPAXX) .

"The Fidelity Account®" appears to be the basic trading account that would hold the IRA with the Fidelity® Total Market Index Fund (FXKAX). I'm guessing it would also hold the non-tax deferred Government Money Market Fund alongside that in a non-IRA account. If you or your guy get on the phone with a Fidelity person they can explain these details.


“John Bogle recommends a simple portfolio of only two funds for many investors: Vanguard Total Stock Market Index Fund and Total Bond Market Index Fund..."
Any reason why you would not recommend bonds?


The unwritten heading of this conversation is "Retirement Planning with not much time or income."
The subhead is, "Having an emergency fund big enough that a temporary loss of employment income doesn't wipe you out."

Here's the challenge: At age 50, and with limited amounts to invest, and the need to bulk-up an emergency fund, your guy's main priority is growth, which means stocks. If he had $500,000+ to invest over that period, it would make sense to have some in bonds, to help from freaking-out when stocks eventually fall 40% or 50% in a few days, weeks or months. (Which of course we hope, and history suggests, he and we will get back and more over a few years.)

But he has just $8,000 a year to invest, for (I'm guessing) about 15 years. If it all went to stocks it would be $120,000. But some will go to the emergency fund, so let's call it $100,000 in stock investments and $20,000 into the emergency fund, held in a money market fund.

As I said before, it's very possible the stock market could double in 15 years - with some reverses along the way - leaving your guy with a respectable pile for retirement.

Bonds will not produce that kind of growth. Prudence dictates he needs a healthy emergency fund, and that can serve as his "fixed income" (bond) allocation. But he doesn't have the time or income to create a "balanced portfolio" of stocks and bonds that would be prudent if he were 20 years younger with twice as much to invest. The amount he can put in bonds at this point is not enough to make much difference in a market downturn or when he stops working. But the amount he can put in stocks IS enough to make a difference - assuming the market doesn't toss us all a big curveball with an exceptionally brutal and extended decline. History suggests the odds favor us, but there's no guarantee.

You haven't mentioned what other income sources he will have in retirement, especially Social Security. Hopefully he will be getting a check from that every month. If that is not the case, the picture looks a lot darker for him, but doesn't change much of what I've written. If he stuck all or half of that $120,000 in bonds, he still would have to keep working for a much longer time. If it's in stocks, and he and we are reasonably lucky with the future growth, that will make a big difference.

Like I said, there are judgment calls to be made here, and I can't help because I don't know those critical details.
"I know nothing."
Topic Author
blwegrzyn
Posts: 31
Joined: Sun Jun 30, 2024 9:46 pm

Re: Roth IRA what to invest in and how

Post by blwegrzyn »

Johnnie wrote: Sat Jul 06, 2024 2:07 pm
blwegrzyn wrote: Sat Jul 06, 2024 10:43 am
As I am going through the WIKi I see the fund you mentioned:
Fidelity® Total Market Index Fund

yet Bogle recommends on Wiki to include index bonds:
“John Bogle recommends a simple portfolio of only two funds for many investors: Vanguard Total Stock Market Index Fund and Total Bond Market Index Fund.[8]”

Any reason why you would not recommend bonds? Would not this be more secure knowing the person got not much time to save or this would slow down the growth and would not be as productive? I think you mentioned this option with earlier post.

I think somewhere on WIKI I read that lack of Bonds might cause surprises and unnecessary headaches when seeing market up and down?
Would not this also mean lack of diversified portfolio?

I convinced my friend to invest 8k in traditional iRA a year. (not just this year) on top of emergency fund.
Right now there is 3000$ to invest and possibly another 1000$ to start building solid emergency fund.

So it seems like good start with above would be:
Invest 3000$ to FXKAX in traditional IRA

I am not sure if I understand exactly what you mean by:
“This could be held in a simple Money Market Fund at Fidelity, not a tax-deferred IRA.”

Should one of below accounts be created:
Brokerage–The Fidelity Account®
or
Fidelity Cash Management Account

And invest $1000 in Money Market Fund? (What would be that?)
I see lots of options:
https://institutional.fidelity.com/app/ ... funds.html
The Fidelity Cash Management Account appears to be the same as the Fidelity Government Money Market Fund (SPAXX), with a couple bells-and-whistles in the former: "Free mobile check deposit and mobile Bill Pay; No annual fee debit/ATM card with ATM fee reimbursements; Free online Bill Pay; Free checkwriting; Free online transfers between your Fidelity accounts and bank accounts."

I'm guessing your guy's finances are simple enough that those things are not especially useful to him. Personally, I'd keep it simple and just get the Government Money Market Fund (SPAXX) .

"The Fidelity Account®" appears to be the basic trading account that would hold the IRA with the Fidelity® Total Market Index Fund (FXKAX). I'm guessing it would also hold the non-tax deferred Government Money Market Fund alongside that in a non-IRA account. If you or your guy get on the phone with a Fidelity person they can explain these details.


“John Bogle recommends a simple portfolio of only two funds for many investors: Vanguard Total Stock Market Index Fund and Total Bond Market Index Fund..."
Any reason why you would not recommend bonds?


The unwritten heading of this conversation is "Retirement Planning with not much time or income."
The subhead is, "Having an emergency fund big enough that a temporary loss of employment income doesn't wipe you out."

Here's the challenge: At age 50, and with limited amounts to invest, and the need to bulk-up an emergency fund, your guy's main priority is growth, which means stocks. If he had $500,000+ to invest over that period, it would make sense to have some in bonds, to help from freaking-out when stocks eventually fall 40% or 50% in a few days, weeks or months. (Which of course we hope, and history suggests, he and we will get back and more over a few years.)

But he has just $8,000 a year to invest, for (I'm guessing) about 15 years. If it all went to stocks it would be $120,000. But some will go to the emergency fund, so let's call it $100,000 in stock investments and $20,000 into the emergency fund, held in a money market fund.

As I said before, it's very possible the stock market could double in 15 years - with some reverses along the way - leaving your guy with a respectable pile for retirement.

Bonds will not produce that kind of growth. Prudence dictates he needs a healthy emergency fund, and that can serve as his "fixed income" (bond) allocation. But he doesn't have the time or income to create a "balanced portfolio" of stocks and bonds that would be prudent if he were 20 years younger with twice as much to invest. The amount he can put in bonds at this point is not enough to make much difference in a market downturn or when he stops working. But the amount he can put in stocks IS enough to make a difference - assuming the market doesn't toss us all a big curveball with an exceptionally brutal and extended decline. History suggests the odds favor us, but there's no guarantee.

You haven't mentioned what other income sources he will have in retirement, especially Social Security. Hopefully he will be getting a check from that every month. If that is not the case, the picture looks a lot darker for him, but doesn't change much of what I've written. If he stuck all or half of that $120,000 in bonds, he still would have to keep working for a much longer time. If it's in stocks, and he and we are reasonably lucky with the future growth, that will make a big difference.

Like I said, there are judgment calls to be made here, and I can't help because I don't know those critical details.
I am still little confused.
Sorry if i dont explain things clearly.

The mentioned SPAXX is the market fund
https://fundresearch.fidelity.com/mutua ... /31617H102
so my friend needs to have some account to where to invest into SPAXX.
This is why I mentioned above accounts.

The expectation is to contribute full 8000$ into traditional IRA and if going with your recommendation hold that in the FSKAX so there will be nothing left to contribute as total investment would go to FSKAX.
Now if we want to contribute extra 1000$ outside that 8000 to build an emergency fund we need some account to do so, and this is why i was asking about recommended way were to hold that emergency fund.

Lets say if
The Fidelity Cash Management Account
is chosen how does it compared to good APR savings account?
Would the investment into SPAXX still yield some extra money and perform better then just regular account?
I assume selection of SPAXX is to hold money in a fund that is stable and there will be no loss but only slight guaranteed gain?
Are those compounded rates?

It seems like the SS income might get my friend around 900-1200 a month based on current earnings.

So if my friend invests 8000*15 years there is potential to go from 120000 to somewhere. I hope there is less risk to end up with less then 120K if invested into FSKAX or this is still a gamble?

When running some simulations for aggressive plan fidelity robots recommend below for initial 3000$
Domestic stock 60.0%
Foreign stock 25.0%
Bonds 15.0%
Short term 0.0%
Funds based on your preferences

Symbol Fund Name % of Portfolio Amount
FZROX Fidelity ZERO Total Market Index Fund 60.00% $1,800.00
FZILX Fidelity ZERO International Index Fund 25.00% $750.00
FXNAX Fidelity U.S. Bond Index Fund 15.00% $450.00


most aggressive:
Domestic stock 70.0%
Foreign stock 30.0%
Bonds 0.0%
Short term 0.0%
Funds based on your preferences

Symbol Fund Name % of Portfolio Amount
FZROX Fidelity ZERO Total Market Index Fund 70.00% $2,100.00
FZILX Fidelity ZERO International Index Fund 30.00% $900.00

I think you already advised against those types.
Is it because those ZERO funds cannot be transferred?

So when only FSKAX against above are we looking at big difference assuming things go right?
is it like 180K against 250K difference totals at the end of 15 year period?
User avatar
Johnnie
Posts: 634
Joined: Sat May 28, 2016 3:18 pm
Location: Michigan

Re: Roth IRA what to invest in and how

Post by Johnnie »

(I’m going to address your friend directly for simplicity’s sake.)

When you call Fidelity about opening an account they will explain about the different types and make it very simple (they want your business!) In short, you want a tax-deferred IRA account (Roth or Regular IRA) to hold the stock market share (FSKAX), and a probably a separate taxable account to hold the money market fund (SPAXX).

How you divide the annual $8k contributions between the two is totally up to you. You may want to go half-and-half in the first two or three years to more quickly build that emergency fund, but it’s purely a judgment call. I can understand wanting to get a quicker start on building up stock market fund.

“I assume selection of SPAXX is to hold money in a fund that is stable and there will be no loss but only slight guaranteed gain?”
That is correct. The return on a money market fund is better than a regular bank saving account, but most banks also now offer accounts that are essentially the same as an MMF.

“I hope there is less risk to end up with less than 120K if invested into FSKAX (stocks) or this is still a gamble?”

Investing in the stock market (FSKAX) is always a gamble. The value of stocks can and does fall by half some sometimes. Over the past century they’ve always gone back up and more, but there’s no guarantee. The longer you stay in in the better the odds.

So why do it? It’s still the best way to grow your money by a meaningful amount. The money market fund is safe but it will never deliver more than about about 2% above inflation. On the other hand, over time the stock market has delivered average annual returns closer to 9% - with lots of ups and downs along the way.

If you put $8k/year into a money market fund for 15 years, and it grew at 2% above inflation each year you’d finish with $149,000 in 2024 dollars– a total gain of $29,000. That essentially guaranteed. (I’m using a very simplified online calculator to produce these numbers: https://www.nerdwallet.com/calculator/c ... calculator).

If you put the same amount in the stock market (FSKAX) and the market rose 9% a year on average you would have $272,737, a gain of $150,000. The downside, of course, is nasty downturns from time to time – that $272k could easily become $172k in a short time. There are no guarantees, but for more than a century it has always come back before too long - and then grown some more.

BTW, a lot of the in-depth descriptions of the various investment options you are reading - things like safer bonds to balance the bad times that will happen in the stock market, for example - are targeted at professional people in their 30s or 40s who have much more to invest and much longer for it to grow. Like investing $20k or $50k annually for 30+ years.

That is not where you’re at. You have a minimal amount to invest and a comparatively short time for it to “work.” The fact that you can still have a reasonable chance of retiring at age 65 with a $272,000 nest egg is a good demonstration of the value and power of owning stocks.

So, I would avoid further deep-diving into all those different and more complex alternatives. They are not relevant to your situation. Your choices and decisions are comparatively narrow and simple: How much each year to the MMF, and how much to the stock fund? Maybe in the first few years half goes to the MMF to give you that emergency fund and savings “backstop,” and after that start putting the whole $8k into the stock fund. That’s really your only challenging decision if you go this direction, and you can always tweak it in the future. ("Beware the 'paralysis of analysis.' ")

There’s one more critical factor for you to think about: How long can you keep working, and thereby delay taking Social Security? Every year you wait makes a huge difference in how much you get. Check it out on some online calculator,* how much more you will get if you wait until 68 or 70.
Maybe one of the more sophisticated Bogle heads here can provide some estimates. Your annual earnings also go into the equation – more years working equals more contributions to your account which means bigger monthly checks when you stop working and claim benefits.

*Better yet, check it out on the Social Security website. If you've been contributing you already have an account there, which you can access by signing up for a password.
"I know nothing."
Topic Author
blwegrzyn
Posts: 31
Joined: Sun Jun 30, 2024 9:46 pm

Re: Roth IRA what to invest in and how

Post by blwegrzyn »

Johnnie wrote: Mon Jul 08, 2024 6:06 pm (I’m going to address your friend directly for simplicity’s sake.)

When you call Fidelity about opening an account they will explain about the different types and make it very simple (they want your business!) In short, you want a tax-deferred IRA account (Roth or Regular IRA) to hold the stock market share (FSKAX), and a probably a separate taxable account to hold the money market fund (SPAXX).

How you divide the annual $8k contributions between the two is totally up to you. You may want to go half-and-half in the first two or three years to more quickly build that emergency fund, but it’s purely a judgment call. I can understand wanting to get a quicker start on building up stock market fund.

“I assume selection of SPAXX is to hold money in a fund that is stable and there will be no loss but only slight guaranteed gain?”
That is correct. The return on a money market fund is better than a regular bank saving account, but most banks also now offer accounts that are essentially the same as an MMF.

“I hope there is less risk to end up with less than 120K if invested into FSKAX (stocks) or this is still a gamble?”

Investing in the stock market (FSKAX) is always a gamble. The value of stocks can and does fall by half some sometimes. Over the past century they’ve always gone back up and more, but there’s no guarantee. The longer you stay in in the better the odds.

So why do it? It’s still the best way to grow your money by a meaningful amount. The money market fund is safe but it will never deliver more than about about 2% above inflation. On the other hand, over time the stock market has delivered average annual returns closer to 9% - with lots of ups and downs along the way.

If you put $8k/year into a money market fund for 15 years, and it grew at 2% above inflation each year you’d finish with $149,000 in 2024 dollars– a total gain of $29,000. That essentially guaranteed. (I’m using a very simplified online calculator to produce these numbers: https://www.nerdwallet.com/calculator/c ... calculator).

If you put the same amount in the stock market (FSKAX) and the market rose 9% a year on average you would have $272,737, a gain of $150,000. The downside, of course, is nasty downturns from time to time – that $272k could easily become $172k in a short time. There are no guarantees, but for more than a century it has always come back before too long - and then grown some more.

BTW, a lot of the in-depth descriptions of the various investment options you are reading - things like safer bonds to balance the bad times that will happen in the stock market, for example - are targeted at professional people in their 30s or 40s who have much more to invest and much longer for it to grow. Like investing $20k or $50k annually for 30+ years.

That is not where you’re at. You have a minimal amount to invest and a comparatively short time for it to “work.” The fact that you can still have a reasonable chance of retiring at age 65 with a $272,000 nest egg is a good demonstration of the value and power of owning stocks.

So, I would avoid further deep-diving into all those different and more complex alternatives. They are not relevant to your situation. Your choices and decisions are comparatively narrow and simple: How much each year to the MMF, and how much to the stock fund? Maybe in the first few years half goes to the MMF to give you that emergency fund and savings “backstop,” and after that start putting the whole $8k into the stock fund. That’s really your only challenging decision if you go this direction, and you can always tweak it in the future. ("Beware the 'paralysis of analysis.' ")

There’s one more critical factor for you to think about: How long can you keep working, and thereby delay taking Social Security? Every year you wait makes a huge difference in how much you get. Check it out on some online calculator,* how much more you will get if you wait until 68 or 70.
Maybe one of the more sophisticated Bogle heads here can provide some estimates. Your annual earnings also go into the equation – more years working equals more contributions to your account which means bigger monthly checks when you stop working and claim benefits.

*Better yet, check it out on the Social Security website. If you've been contributing you already have an account there, which you can access by signing up for a password.
I think i finally understand what you meant by SPAXX.
I checked with Fidelity and I can use their cash management account or brokerage account and set the core to be SPAXX. I tested this on my own account I have with them I and can select SPAXX or FZFXX as a core. In addition I can select FCASH - Taxable Interest Bearing Cash Option with lower 2.69 interest.

So I will just help my friend to open simple brokerage individual account and set core as SPAXX.
Later could even experiment to grow some money there from different funds in addition to traditional IRA.
if you put the same amount in the stock market (FSKAX) and the market rose 9% a year on average you would have $272,737, a gain of $150,000. The downside, of course, is nasty downturns from time to time – that $272k could easily become $172k in a short time. There are no guarantees, but for more than a century it has always come back before too long - and then grown some more
I guess that is still better than gain of 29K only.
The worst case is when my friend retires he might have less money in IRA at that point.
But it seems like because this wont be any target fund it can still bounce back in time if he waits extra year or two.

Yes a totally agree with all the comments. You explain things so nicely. Thank you.

I will see how things go with my friend but I want to convince him to contribute 8k to IRA a year and he will work on putting as much as he can to emergency fund shooting for 2k-4k a year at minimum. I know this might be tough for him but I am willing to help him a little bit as if he takes that money out of that 8K contribution his IRA funds be lower and less money for the retirement although i understand he needs to prioritirize emergency fund so he does not try to scarify his IRA when trouble comes.

In past I had friends that i helped estimate SS earning and I made some tables based on how SS explains how to calculate it on their website and it was pretty close so I also explained to my friend that in a way paying for taxes more is better then some minimum as this would put him in another hole. Some people hate SS but I think it is still some income and there is some possibility to get some support from SS in addition to to SS income.

So in general some SS and some traditional IRA can get him some money to survive at older age.

i think this should be a good plan to start with.
User avatar
Johnnie
Posts: 634
Joined: Sat May 28, 2016 3:18 pm
Location: Michigan

Re: Roth IRA what to invest in and how

Post by Johnnie »

deleted
"I know nothing."
Topic Author
blwegrzyn
Posts: 31
Joined: Sun Jun 30, 2024 9:46 pm

Re: Roth IRA what to invest in and how

Post by blwegrzyn »

Johnnie wrote: Wed Jul 10, 2024 1:10 pmdeleted
DId i miss anything important from your deleted response?
Topic Author
blwegrzyn
Posts: 31
Joined: Sun Jun 30, 2024 9:46 pm

Re: Roth IRA what to invest in and how

Post by blwegrzyn »

I wonder if potential for the grown and especially if there is any more security with:

mixing:
FZROX Fidelity ZERO Total Market Index Fund -70%
FZILX Fidelity ZERO International Index Fund - 30%

vs
FZROX Fidelity ZERO Total Market Index Fund -100%
User avatar
FiveK
Posts: 16356
Joined: Sun Mar 16, 2014 2:43 pm

Re: Roth IRA what to invest in and how

Post by FiveK »

blwegrzyn wrote: Fri Jul 12, 2024 4:21 pm I wonder if potential for the grown and especially if there is any more security with:

mixing:
FZROX Fidelity ZERO Total Market Index Fund -70%
FZILX Fidelity ZERO International Index Fund - 30%

vs
FZROX Fidelity ZERO Total Market Index Fund -100%
See International (Non-US) versus US Equities (The "Arguments") and similar threads if you have a few spare hours (days? weeks?).

In other words, "nobody knows".
Topic Author
blwegrzyn
Posts: 31
Joined: Sun Jun 30, 2024 9:46 pm

Re: Roth IRA what to invest in and how

Post by blwegrzyn »

FiveK wrote: Fri Jul 12, 2024 4:27 pm
blwegrzyn wrote: Fri Jul 12, 2024 4:21 pm I wonder if potential for the grown and especially if there is any more security with:

mixing:
FZROX Fidelity ZERO Total Market Index Fund -70%
FZILX Fidelity ZERO International Index Fund - 30%

vs
FZROX Fidelity ZERO Total Market Index Fund -100%
See International (Non-US) versus US Equities (The "Arguments") and similar threads if you have a few spare hours (days? weeks?).

In other words, "nobody knows".
Looks like fun read.

Just finished the main philosophy tips and videos and starting to see a little how this works, all the risk ,unpredictability, etc and some simple helpful rules to follow.

It seems like i might myself in addition to my friend get some benefits from all the valuable lessons i learned in this post.
Nothing is easy, always had to put work into it.
Did i just open a can of worms?
Bama12
Posts: 845
Joined: Fri Aug 30, 2019 11:48 pm

Re: Roth IRA what to invest in and how

Post by Bama12 »

I have two funds in my Roth.

Vanguard Strategy Growth-VASGX
Vanguard Small Cap Value-VSIAX
User avatar
Johnnie
Posts: 634
Joined: Sat May 28, 2016 3:18 pm
Location: Michigan

Re: Roth IRA what to invest in and how

Post by Johnnie »

blwegrzyn wrote: Fri Jul 12, 2024 4:21 pm I wonder if potential for the grown and especially if there is any more security with:

mixing:
FZROX Fidelity ZERO Total Market Index Fund -70%
FZILX Fidelity ZERO International Index Fund - 30%
vs
FZROX Fidelity ZERO Total Market Index Fund -100%

I don't understand why Fidelity has "No Transaction Fee" funds that appear to be identical to the total market fund (FSKAX), etc. (See * at bottom.) I suspect there's a catch, and that there is in fact is no real difference in cost. (The catch may be in the term "transaction fee;" I notice these are still "subject to the fund's management and operating expenses.")

FZROX is the same as FSKAX - a Total (Domestic) Stock Fund.

Fidelity Asset Manager® 70%
This one is the same thing but they put 25% in bonds and 5% in MMF.

Fidelity ZERO International Index Fund (FZILX)
This is an international Total Market Fund version: "...seeks to provide investment results that correspond to the total return of foreign developed and emerging stock markets."

None of these options change what I wrote here earlier. The relatively small amounts you have to invest and the short time for them to "work" (about 15 years before retirement) means you won't benefit much by putting small amounts into bonds. The need to keep more in a substantial and highly liquid emergency fund suggests putting those dollars in a Money Market Fund instead.

If you had more to invest for a longer time, a mixed 70/30 stocks-and-bonds fund might make more sense. But you don't.

ETA: The same applies to dividing your already-modest portfolio into "penny packets" of small cap, "tech," emerging market, or other niches. Your "main chance" is to concentrate your investment in a Total Market Fund. Diversification? The Fidelity version itself owns more than 3,000 stocks!

Keep your eye on the ball, not all the shiny objects the mutual fund companies dangle before you. The "Zero" funds are probably gimmicks that offer no real savings, but probably won't hurt you either. The 70/30 fund is an unnecessary complication that takes away from your need for a more substantial and liquid emergency fund.

Don't let over-thinking and endless "analysis" become "paralysis." Make your decision, begin the periodic contributions to the Total Market and MMF funds, and move on.

~~~~~

Here's the gist of what I posted-and-deleted, due to not wanting to muddy the water; it circles back to this "FZILX" international fund:
  • Boglehead member "Nispirius" is well-respected "old bull" here; when he speaks people generally listen. Recently he posted that 80% of his stocks are in a domestic Total Market Fund, and 20% are in an International Total Market Fund.

    International stocks have lagged the US market for many, many years, but someday they might roar ahead (or not). For those with more to invest, diversification is a more important consideration. That said, if Nispirius likes 20% foreign, you could do worse.



*Fidelity's definition: "No Transaction Fee Fidelity funds are available without paying a trading fee to Fidelity or a sales load to the fund. However, the fund may charge a short-term trading or redemption fee to protect the interests of long-term shareholders of the fund. Shares are subject to the fund's management and operating expenses. See Expenses & Fees for more information."
"I know nothing."
Topic Author
blwegrzyn
Posts: 31
Joined: Sun Jun 30, 2024 9:46 pm

Re: Roth IRA what to invest in and how

Post by blwegrzyn »

Johnnie wrote: Sat Jul 13, 2024 9:29 pm
blwegrzyn wrote: Fri Jul 12, 2024 4:21 pm I wonder if potential for the grown and especially if there is any more security with:

mixing:
FZROX Fidelity ZERO Total Market Index Fund -70%
FZILX Fidelity ZERO International Index Fund - 30%
vs
FZROX Fidelity ZERO Total Market Index Fund -100%

I don't understand why Fidelity has "No Transaction Fee" funds that appear to be identical to the total market fund (FSKAX), etc. (See * at bottom.) I suspect there's a catch, and that there is in fact is no real difference in cost. (The catch may be in the term "transaction fee;" I notice these are still "subject to the fund's management and operating expenses.")

FZROX is the same as FSKAX - a Total (Domestic) Stock Fund.

Fidelity Asset Manager® 70%
This one is the same thing but they put 25% in bonds and 5% in MMF.

Fidelity ZERO International Index Fund (FZILX)
This is an international Total Market Fund version: "...seeks to provide investment results that correspond to the total return of foreign developed and emerging stock markets."

None of these options change what I wrote here earlier. The relatively small amounts you have to invest and the short time for them to "work" (about 15 years before retirement) means you won't benefit much by putting small amounts into bonds. The need to keep more in a substantial and highly liquid emergency fund suggests putting those dollars in a Money Market Fund instead.

If you had more to invest for a longer time, a mixed 70/30 stocks-and-bonds fund might make more sense. But you don't.

ETA: The same applies to dividing your already-modest portfolio into "penny packets" of small cap, "tech," emerging market, or other niches. Your "main chance" is to concentrate your investment in a Total Market Fund. Diversification? The Fidelity version itself owns more than 3,000 stocks!

Keep your eye on the ball, not all the shiny objects the mutual fund companies dangle before you. The "Zero" funds are probably gimmicks that offer no real savings, but probably won't hurt you either. The 70/30 fund is an unnecessary complication that takes away from your need for a more substantial and liquid emergency fund.

Don't let over-thinking and endless "analysis" become "paralysis." Make your decision, begin the periodic contributions to the Total Market and MMF funds, and move on.

~~~~~

Here's the gist of what I posted-and-deleted, due to not wanting to muddy the water; it circles back to this "FZILX" international fund:
  • Boglehead member "Nispirius" is well-respected "old bull" here; when he speaks people generally listen. Recently he posted that 80% of his stocks are in a domestic Total Market Fund, and 20% are in an International Total Market Fund.

    International stocks have lagged the US market for many, many years, but someday they might roar ahead (or not). For those with more to invest, diversification is a more important consideration. That said, if Nispirius likes 20% foreign, you could do worse.



*Fidelity's definition: "No Transaction Fee Fidelity funds are available without paying a trading fee to Fidelity or a sales load to the fund. However, the fund may charge a short-term trading or redemption fee to protect the interests of long-term shareholders of the fund. Shares are subject to the fund's management and operating expenses. See Expenses & Fees for more information."
thx again for detailed response.

I found below post describing differences:
https://www.whitecoatinvestor.com/fskax-vs-fzrox/

When it comes to when to start investing does it matter to wait for any price change and then invest or i should not stress about it and just start investing and let it do its thing?
sailaway
Posts: 8778
Joined: Fri May 12, 2017 1:11 pm

Re: Roth IRA what to invest in and how

Post by sailaway »

Mikosan wrote: Mon Jul 01, 2024 9:20 pm At $40,000 in income, after the standard deduction, you're in such a low tax bracket that it makes total sense to ho the Roth route. From that point on, all that money and growth is theirs. At age 50, given they have little to nothing, ithink I'd just get them set up in a target date fund and let them pick it. They need to know the what and why of what they are doing. The best time to start was 30 yrs ago. The next best time to start is today.
At this income level, traditional options might be enough to earn the savers credit. This should be a strong consideration.
Post Reply