I just opened a Roth IRA and would like some pointers.

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spokaneman.
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I just opened a Roth IRA and would like some pointers.

Postby spokaneman. » Fri Apr 27, 2012 3:52 pm

Hey everyone, I'm 27 and life is finally stable enough to invest in my future. I opened a Roth IRO with vanguard and have 3K sitting in a Prime Money Mkt Fund until I find a home for it. From my research so far index funds are the way to go and I'm looking at the Vanguard Total Stock Mkt Idx Inv & Vanguard Target Retirement 2050 Inv as my primary investments. I'd love to hear your thought on those funds and any others you personalty like.

Also, and sorry if this is a silly question but should I go ahead and buy them now or wait a month or so to see if the prices dip and try to get them at a lower price. I guess worrying about the small dips doesn't really make since in the long term but I planed on purchasing 3k worth of one and 2k of the other in a few months so I don't know if it's worth just keep an eye on them to buy up when they are cheaper.

Thanks!

VinTek
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Re: I just opened a Roth IRA and would like some pointers.

Postby VinTek » Fri Apr 27, 2012 4:56 pm

spokaneman. wrote:From my research so far index funds are the way to go and I'm looking at the Vanguard Total Stock Mkt Idx Inv & Vanguard Target Retirement 2050 Inv as my primary investments. I'd love to hear your thought on those funds and any others you personalty like.

Why are you choosing both of those funds together?

spokaneman. wrote:Also, and sorry if this is a silly question but should I go ahead and buy them now or wait a month or so to see if the prices dip and try to get them at a lower price. I guess worrying about the small dips doesn't really make since in the long term but I planed on purchasing 3k worth of one and 2k of the other in a few months so I don't know if it's worth just keep an eye on them to buy up when they are cheaper

Don't try to time the market. Nuff said.

blueskyy
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Re: I just opened a Roth IRA and would like some pointers.

Postby blueskyy » Fri Apr 27, 2012 5:04 pm

I was/am in a very similar situation as you! I'll save the others a little time; here's a link to a thread I created about the exact same topic.

Basically, I was advised:
- Either choose the retirement fund OR other index funds -- not any combination of both.
- Since you're young, it doesn't make any sense to time the market since there will always be ups and downs; further, your retirement is decades away so short term fluctuations are irrelevant at this time.

spokaneman.
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Re: I just opened a Roth IRA and would like some pointers.

Postby spokaneman. » Fri Apr 27, 2012 5:40 pm

blueskyy wrote:Basically, I was advised:
- Either choose the retirement fund OR other index funds -- not any combination of both.
- Since you're young, it doesn't make any sense to time the market since there will always be ups and downs; further, your retirement is decades away so short term fluctuations are irrelevant at this time.


Ah wish I had found that thread before posting. Thanks for the info I'm going back to read through it some more :)

flinch13
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Re: I just opened a Roth IRA and would like some pointers.

Postby flinch13 » Mon Apr 30, 2012 3:19 am

I did the same thing. It's a fine choice. The target retirement fund is great for people who don't want to think about their investments, and the total stock market index is a good choice when you can accept a healthy dose of risk in your life. I'd say go forward with both; at your age, half and half should do it.

Oh, and also: READ! Take everything you read on online forums with a grain of salt. I highly recommend you pick up a copy of "A Random Walk Down Wall St.".

VinTek
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Re: I just opened a Roth IRA and would like some pointers.

Postby VinTek » Mon Apr 30, 2012 10:08 am

flinch13 wrote:I did the same thing. It's a fine choice. The target retirement fund is great for people who don't want to think about their investments, and the total stock market index is a good choice when you can accept a healthy dose of risk in your life. I'd say go forward with both; at your age, half and half should do it.

Why? If you want to determine your own asset allocation based on your risk profile, why would you turn over part of that control to a target fund? If don't want to think about it, why would you screw up the asset allocation that's the target fund determines is appropriate for you?

DoingHomework
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Re: I just opened a Roth IRA and would like some pointers.

Postby DoingHomework » Mon Apr 30, 2012 12:38 pm

VinTek wrote:Why? If you want to determine your own asset allocation based on your risk profile, why would you turn over part of that control to a target fund? If don't want to think about it, why would you screw up the asset allocation that's the target fund determines is appropriate for you?


I agree. And the whole debate about target date funds is mostly pointless unless you are talking about a fund with a date within about 10 years of now.

The Vanguard 2060 fund is 90% stocks, 10% bonds. Dropping all the way back to the 2020 fund the allocation only changes to 65% stocks, 35% bonds. Even the 2025 fund is 72% stocks. So I don't really think you are getting much benefit from the allocation choices made by these funds. I'm not saying there is anything wrong with their choices. I just mean that the choices are not exactly rocket science and they don't change very fast. You could just as easily look at their composition and duplicate it manually. You'd probably only have to make a change every decade or do.

But, one thing you should be aware of with the target date funds is that they have fairly high allocation to international stocks. If you hold them in an IRA or 401k plan you will lose the tax credit for the foreign taxes you'll end up paying on those international holdings. You could be throwing away as much as 1% in overall return and that can make a huge difference.

stannius
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Re: I just opened a Roth IRA and would like some pointers.

Postby stannius » Tue May 08, 2012 2:22 pm

VinTek wrote:Why? If you want to determine your own asset allocation based on your risk profile, why would you turn over part of that control to a target fund? If don't want to think about it, why would you screw up the asset allocation that's the target fund determines is appropriate for you?


It's certainly possible that one could determine the "perfect" asset allocation, and then find a target date or other fund-of-funds that almost perfectly matches the allocation you came up with, if only it had 5% more in international and 5% less in domestic stocks. So you could buy the fund-of-funds and then a separate stake in an international fund. You'd still need to deal with rebalancing your side fund and the fund-of-funds to keep your overall allocation on track.

VinTek
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Re: I just opened a Roth IRA and would like some pointers.

Postby VinTek » Tue May 08, 2012 2:50 pm

stannius wrote:
VinTek wrote:Why? If you want to determine your own asset allocation based on your risk profile, why would you turn over part of that control to a target fund? If don't want to think about it, why would you screw up the asset allocation that's the target fund determines is appropriate for you?


It's certainly possible that one could determine the "perfect" asset allocation, and then find a target date or other fund-of-funds that almost perfectly matches the allocation you came up with, if only it had 5% more in international and 5% less in domestic stocks. So you could buy the fund-of-funds and then a separate stake in an international fund. You'd still need to deal with rebalancing your side fund and the fund-of-funds to keep your overall allocation on track.

This is true if the glide-path the fund company chooses coincides with your "perfect" plan as well. I find that if you go through the work to determine the perfect allocation for yourself (which indicates that you're "hands on" in nature), it rarely stays perfect for you throughout it's life. Yes, different companies take different approaches (some riskier and a some more conservative) but then the differences in expenses also start to come into play. My guess is that if you're "hands off" enough to want to use a target retirement fund, you're probably too "hands off" to have done the work of determining your "perfect" asset allocation.


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