All of the IRA discussion lately has inspired me to get working on contributing to mine. From what I've read and researched myself, I tend to really like what Vanguard has to offer as a company, but am not sure of which would be the best way to invest with them. I am torn between signing up for an IRA directly with them and investing with the STAR mutual fund to start with and eventually branch out to other funds (is it possible to get their ETFs directly from them in an IRA as well, and is that a good/bad idea?), or going with something like Zecco and just investing in their ETF offerings in an IRA and going that way (although who knows how long Zecco would stay free/low cost, and will that make a difference in the long-run?).

I've read a bunch about ETFs versus mutual funds, but am still confused on what the best way to go about investing would be for a retirement account. I'm 25 and just starting out with investing in general. Up till now, I've just been investing small amounts in a taxable ShareBuilder account and don't have anything specifically set aside for retirement (aside from small work contributions). I do like the partial shares that ShareBuilder offers since I invest so little right now, but like J.D., I'm looking to establish myself some place better for the long haul. Any advice/thoughts would be greatly appreciated.

You can get Vanguard's ETFs through their brokerage department, but it's expensive so I'd just use a discount broker if you're going to invest in ETFs.

My thoughts on ETFs vs. Mutual Funds:

If you're going to invest in amounts over $1k at a time, then go for the ETF. If you will be investing less than $1k at a time then a mutual fund is typically better because you'll pay less in fees.

Small amounts and sharebuilder=ouch! If you like the stocks that you hold there you can transfer them to another brokerage (one with free DRIP if you reinvest your divis) but they will liquidate any partial shares...and it will cost you $50. Depending on how much you have invested there it may make sense to leave it but stop investing and just let the divis build.

For different reasons I would add that if you plan to be actively trading, go the mutual fund route. If you have the discipline to buy and hold, go ETFs (though with a different brokerage).

It takes a LOT of discipline to buy & hold, but all the evidence (studies, statistics) shows that you are not smarter than the markets and over time cannot pick individual stocks or time your transactions.

Yeah, I agree that I need to be more fee-conscious, and for the time being mutual funds will probably be a better investment for me with making smaller contributions. I guess I keep forgetting that I'm not really locked in to them once I start purchasing either, since in the future if I make more money and want more flexibility, I can always go the discount brokerage route as well and contribute less to the funds. Thanks for the clarification and ideas...

Unless you're investing at least $5k or more, ETFs aren't very effective b/c you pay commission fees + expense fees as well. When starting out, index/mutual funds are the best way to go about investing.

As for vanguard, they are a wonderful investment firm, and I highly recommend them. The STAR fund is a good choice to start out with, but I'm sure you'll become more aggressive as you learn more about the investing game.

1 last thing: fees are not your biggest concern; it's time. Time is your biggest enemy because it cannot be replaced nor replicated. So make a decision soon, open that account, and get started ASAP. Each day you lose = a day of lost wealth. That's why some 70-year olds cannot retire; They took time for granted, and it's costing them dearly.

Well, it's been a hectic month with a lot of life changes (ended a 3-year relationship, finding a new place to live, etc.) which meant extra expenses, but I'm finally moving on opening my IRA. I'm taking the commission hit to sell what little I've got at ShareBuilder and am going to open a Roth with Vanguard and invest in their STAR fund to start out.

One (possibly stupid) question though...once I do build up enough money to invest in more aggressive funds, is it possible to transfer money from one fund to another from within an IRA? For instance if I saved up $4000 this year to fully fund my Roth in the STAR fund, but later want to take $3000 of that and put it in to a different fund, is that always a possibility to do so without fees? Does it make a difference if I'm moving contributions versus earnings if it's all still considered part of my IRA and not a distribution?

Yes, you should be able to transfer balances from one fund to another within the IRA -- as long as you meet the minimum amount for the fund into which you are transferring the money. This is done all the time in rebalancing a portfolio. I don't believe that any fees or penalties will apply. Sometimes there is a minimum wait period between transfers.

This shouldn't be a problem. There are a couple Vanguard funds that require you hold for a certain period or they charge a sales fee (energy is one I think and maybe an international fund). This is to discourage people from fund hopping because that creates capitol gains for everyone. But, if you hold for that period (60-90 days I think) it shouldn't be a problem and you shouldn't have to pay a fee. As long as you keep it in the Roth it doesn't matter.

Awesome...thank you both for the information!

I'm gonna jump into this thread here, because I'm dealing with similar questions.

I'm 29 and am waking up to the need to start saving for retirement (no dogpiling please, I can't go back and change that, but I can take steps in the right direction now). I have some cash saved, but no 401(k) and no IRA. I'm going to open an IRA in the next week or two, and that will be my focus since my company is now offering 401(k) plans but doesn't offer any matching funds at this time -- I'm going to open one, however.

For the IRA (probably a Roth), I'm looking at a choice between a brokerage like ShareBuilder and investing in a mix of index ETFs versus opening an account with Vanguard and putting all my money into their Year 2050 Target Retirement Fund. I'm not sure what would be the better choice. This fund does have pretty low expenses, which is a plus. I looked at Fidelity's 2050 fund as well, but it has significantly higher expenses.

For the 401(k) we're pretty limited in our choices and there are no index funds available (it's through American Funds) so I'm just going to throw it all into their year 2050 target fund.

One other question. When I open the Roth, should I go ahead and max out my 2007 contribution, or would it be better to only put in $2k or $3k to start and dollar-cost-average my way in over the rest of the year?

Since I need to play some catch-up ball here, I plan to be putting approximately 18% of my pre-tax income into my 401(k) and Roth. For a while, I'm also going to throw some extra cash into a high-yield savings account to build up an emergency fund. My goal is to get about six months worth of living expenses in there, plus I'll use it to save for other things.

Any thoughts? The company is bringing in a financial planner this week that we can talk to, but I always like to get a variety of opinions. Thanks!

Better late than never and you're still ahead of many.



IMO, Sharebuilder is not a great option. Here's a post I wrote on the topic: http://www.personalfinance101.org/Articles/2007/03/why-i-hate-sharebuilder.html. What it comes down to is that for the small amount of money you are going to be contributing, even with the small fees, sharebuilder will still significantly eat into your investment. If you MUST do sharebuilder, only do one ETF. Personally, until you get to the point where you can make larger transactions I'd stick with the fund. Also, Fidelity's expenses tend to be higher in general and on that fund they're much higher because Vanguard takes the average of the expenses in the underlying fund and Fidelity adds them together somehow.



If you have the money, put it in now. And start saving for 2008. There's significant research to show that DCAing doesn't do much to help performance so it's better to just get it in there and working for you ASAP.



Sounds like you have a good plan. Don't sign anything with the planner that your company is bringing in. American Funds are ok, but they are loaded funds and if you buy them outside of your 401k they're going to be really expensive. Not to mention the premium that the FP will charge you. Talk to the guy, pump him for info but don't sign up for anything.

Good luck

Thanks... I only added that point because I posted this same question on another forum and along with getting answers, got seriously dogpiled as lazy and unmotivated for not having any savings at all... kind of annoying.

Edit: Any investments, I should say... I have liquid cash.

Fair enough. The 2008 Roth IRA limit ($5k) works out to a bit over $400 a month, so I may just start pushing that into my emergency fund until January and then have Vanguard auto-deduct that on a monthly basis so I don't think about it and don't see the money in my checking account.



Thanks! I should note that the planner in question is not associated with American Funds... I asked our CFO about that yesterday and he said he made sure to get someone who's independent... but aside from setting up the 401(k), all I really want is to pump him for info, and I'll handle the details myself.