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 Post subject: Where to start with my IRA?
PostPosted: Mon Apr 16, 2007 8:29 am 

Joined: Sun Apr 15, 2007 2:57 pm
Posts: 15
Location: Oakland, CA
I am planning on opening an IRA to which I will be contributing about $200/month. I'm self-employed and as I build my business, this is as much as I can currently afford to put towards retirement. Not ideal, but it's something.

Can anyone suggest where to open the IRA and invest it? I'm in my early twenties so I can afford a bit of risk but even typing "risk" makes me a bit queasy. I'm interested in some of the funds with targeted retirement dates (mine would be around 2050) because ideally, I would invest the money, not touch it and take it out when I'm 70. I am a complete investment neophyte so any information and advice is greatly appreciated!


Thanks!

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PostPosted: Mon Apr 16, 2007 8:35 am 
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Location: Portland, Oregon
This is a great question. I'm working on an entry for later in the month that will answer some of these questions. I'll harvest the best tips from this thread to include in the post...


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 Post subject: Re: Where to start with my IRA?
PostPosted: Mon Apr 16, 2007 9:44 am 
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Joined: Thu Apr 05, 2007 6:30 am
Posts: 336
Location: Houston, TX
Pinkiesngr wrote:
I am planning on opening an IRA to which I will be contributing about $200/month. I'm self-employed and as I build my business, this is as much as I can currently afford to put towards retirement. Not ideal, but it's something.

Can anyone suggest where to open the IRA and invest it? I'm in my early twenties so I can afford a bit of risk but even typing "risk" makes me a bit queasy. I'm interested in some of the funds with targeted retirement dates (mine would be around 2050) because ideally, I would invest the money, not touch it and take it out when I'm 70. I am a complete investment neophyte so any information and advice is greatly appreciated!

First, congrats on making the decision to do it. Just getting over that initial fear of the unknown is a major step in the right direction.

Second, there are literally hundreds of places you can open an IRA, so you might as well pick the place with the lowest fees. Discount online brokerages are a good place to start your research. (For example, E*Trade has no fees and no minimums if you sign up for electronic documents)

Third, I personally think your idea of target date funds is a bit redundant. Opening an IRA is the part where you invest and not touch it until you're 70 (or at least 59 1/2). You don't need to pick an investment that further locks you in to the future with potential fees (aka 'loads') if you decide to invest elsewhere. Remember, an IRA is just an account. Granted, it has special rules for putting money in and taking money out, but what you do with the money once it's in the account is up to you and I believe you should give yourself maximum flexibility.

Bottom line, get the account opened and get into the habit of making that monthly contribution. It can sit as cash in the account (earning a little bit of money market interest) until you decide in a few months how you're going to invest it.


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PostPosted: Mon Apr 16, 2007 10:28 am 
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Location: England
I would stick it into the lowest cost whole market index fund I could buy. Definitely one with no costs associated with transferring it to another fund. Then I'd research some more. But the main thing is to do something reasonable profitable with it. If I put it into a cash account within an IRA, then it would be very possible for me to leave it in cash for 10 years. Which could leave me down in real terms (that is taking into account inflation).

Done is better than perfect.

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PostPosted: Mon Apr 16, 2007 10:48 am 

Joined: Sat Apr 07, 2007 2:03 am
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Location: Taishan, Guangdong, China
Something to think about -- if you're self-employed, you may want to start a SEP-IRA instead of an IRA. A SEP-IRA has way higher contribution limits ($44K) but otherwise acts just like an IRA. While you may not be anywhere close to getting into that arena, it's certainly something to plan for if you think your business has potential to completely replace your income in the coming years.


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PostPosted: Mon Apr 16, 2007 10:49 am 
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Location: Houston, TX
Just noticed this article by Flexo --
http://www.consumerismcommentary.com/2007/04/16/not-all-target-retirement-funds-are-created-equal/


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PostPosted: Mon Apr 16, 2007 10:54 am 

Joined: Mon Apr 16, 2007 8:43 am
Posts: 21
Location: San Diego, California
I would suggest Vanguard's IRA funds. I don't have any recommendations as to what individual funds within the IRA, but Vanguard as whole is great. They do have a $3000 minimum ... I am still working my up to that. But as far as performance, I know some of the funds have performed quite well. Some of them, such as the REIT's, have of course performed outstandingly well, but unfortunately I think that has come to an end with the current downward spiral of the real estate market.

For each of the funds, Vanguard has a prospectus (as, I'm sure, everyone else does), showing that fund's performance against other main funds like the S&P.

The other company I have looked into, as it has a lower minimum, is ING Direct. I believe their minimum is $100 - much easier to reach than $3000! They seem to have had decent performance, but I believe their funds a bit too young to really get a good idea on how well they are managed.

Good luck, and good job starting! Now only to start mine.....


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 Post subject: I second that motion.
PostPosted: Mon Apr 16, 2007 11:48 am 
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Location: New York, NY
Jely520 wrote:
I would suggest Vanguard's IRA funds.


I second that. I just recently opened an IRA with Vanguard mainly because of their low expense ratios. In the end I had to chose between Fidelity, where I have a 401k, and Vanguard. Both have great stuff but Vanguards funds have really low expense ratios, around .27%.

Here is a great link from Kiplinger.com

I actually have a question for others. Is it better to invest all at once, or spread out the IRA investment over a year. Does the $3000 minimum apply if you already have an account?


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 Post subject: Re: I second that motion.
PostPosted: Mon Apr 16, 2007 11:56 am 

Joined: Sun Apr 15, 2007 3:56 pm
Posts: 322
Location: left coast
horseloverfat wrote:
Jely520 wrote:
I actually have a question for others. Is it better to invest all at once, or spread out the IRA investment over a year. Does the $3000 minimum apply if you already have an account?


I was wondering the same thing. I have yet to make a contribution to my 2007 IRA, and I'm not sure if I should do it quarterly or all at once. I do have the 4k at hand.


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 Post subject: Re: I second that motion.
PostPosted: Mon Apr 16, 2007 12:14 pm 

Joined: Mon Apr 16, 2007 8:43 am
Posts: 21
Location: San Diego, California
horseloverfat wrote:
I actually have a question for others. Is it better to invest all at once, or spread out the IRA investment over a year. Does the $3000 minimum apply if you already have an account?


My impression was that the $3000 minimum was across the board, regardless of other accounts. Hence why I'm putting my money, that will eventually be that $3000, into VirtualBank's money market... But then my sweetheart and I never looked into the possibility of other accounts leading to the IRA. Though I would think he would notice something, since he has different types of accounts with Vanguard....

My thought on it is to put the money in a high-interest savings account (VirtualBank for me) until I have the minimum, and then move it. That seemed to be the best way to do it. But that's my own personal inclination :)


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 Post subject: Re: I second that motion.
PostPosted: Mon Apr 16, 2007 2:02 pm 
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Location: Houston, TX
horseloverfat wrote:
I actually have a question for others. Is it better to invest all at once, or spread out the IRA investment over a year. Does the $3000 minimum apply if you already have an account?

I don't believe there is one answer to this question, because there is more than one way to invest the funds deposited into an IRA account and not all investments have minimums.

If, for example, you choose to invest the entire amount into an S&P 500 indexed ETF, it is generally considered preferable to invest it all at once, as opposed to paying multiple transaction fees (even with a discount broker). On the other hand, your chosen brokerage/mutual fund combination may allow you to make multiple/periodic investments akin to dollar cost averaging for the price of one transaction.


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PostPosted: Tue Apr 17, 2007 9:26 am 
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Posts: 515
Location: Birmingham, AL
If you go with a brokerage firm, don't go with E-Trade. My Dad had a brokerage account with him and it was nothing but fee here, fee there, inactivity fee, low balance fee ($9600 is considered low balance apparently).

I use Firstrade. Cheap trades ($6.95) for regular brokerage accounts, plus you can get an IRA account. Highly recommended.

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 Post subject: Re: I second that motion.
PostPosted: Wed May 02, 2007 9:27 pm 

Joined: Wed May 02, 2007 8:31 pm
Posts: 5
horseloverfat wrote:
I actually have a question for others. Is it better to invest all at once, or spread out the IRA investment over a year. Does the $3000 minimum apply if you already have an account?


I wondered this for a while too. I was investing in a Vanguard Index Fund for my IRA and had $4000 with which to do it. The question was to pay the initial $3000 minimum and use dollar cost averaging to invest the rest over time, or invest it all at once.

From what I understand, this is a little dicey, but all that I have read/researched on the subject is that typically, you want to get your money working for you as soon as possible -- in other words, invest my $4000 right away as opposed to sitting on $1000 of it, which would do very little for me.

Of course, the actual outcome depends on what the market does in that particular year, but given that the market trends upward over the long run, it is more likely than not that your money will start doing good things for you during the year and the more you have invested from the get-go, the better.

I don't claim to be an expert, but this is what I have gathered from the research I have done on the subject. If you google something like: lump sum vs. dollar cost averaging -- you can read what I have read for yourself.

That being said, I personally think that dollar cost averaging is a GREAT thing when you are investing a portion of your income AS you are getting your paychecks!


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PostPosted: Thu May 03, 2007 4:41 am 

Joined: Thu Apr 19, 2007 7:58 am
Posts: 231
Vanguard also has a balanced fund (STAR) with a 1k minimum that allows you to get your foot in the door. You can transfer it as the balance reaches 3k.

T. Rowe has a $2500 min., 50$ asset builder option for those not able to use Vanguard's 3k minimum, $100 monthly asset builder. T. Rowe's Target's also seem to be more actively managed than Vanguards. But accordingly, this incurs a higher expense ratio (still well under 1%).

If you're looking for a set and forget strategy, IMO go with target funds. You can always move them later down the line if you get more sophistocated with your investing.


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