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ThePoulTrend (70.25)

Where to Start (ROTH IRA)

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August 16, 2014 – Comments (8) | RELATED TICKERS: VTIAX , JMVSX , ACRNX

Hello. I have been wanting to open a ROTH IRA account for a little over a year now, and the more, and the more I do my homework it seems as though the time is now. Only problem is.. Whom do I open the ROTH IRA with? Any Suggestions? What are some important questions that I need to ask when establishing this account, and what should my focus be? Currently I am 25 years of age, contribute 8% into my 401k of which is more than the company match of 4%. As I have already surpassed the 4% match for the year. I have thought it would be best to lower my contributions to 2-3%, and slam putting money into a ROTH IRA. Currently I have about $1000.00 cash to put up front into the account and can easily swing $150.00 contributions on a Monthly basis or $75.00 BIWEEKLY. Any advice would be helpful. 

8 Comments – Post Your Own

#1) On August 16, 2014 at 7:54 PM, Jameson477 (< 20) wrote:

First of all, make sure you put enough into your 401K to get the entire match.  Dependant on your company this may require you to put various amounts in, put typically it would be 4%.  Next, regarding your ROTH, I am a fan of Vanguard because of their rock bottom fees... Their Target Retirement funds (potentially 2055 for you) has a minimum investment of $1,000 and a minimum contribution of $100.  As I am a fan of index funds for retirement accounts (especially when you are more than 10 years out from retirement), I would switch everything to their total market fund once my account was valued above $3000.  You may be thinking more about investing in individual stocks, but with only $150 a month typical trading fees would put you at a significant disadvantage. 

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#2) On August 16, 2014 at 9:15 PM, awallejr (77.67) wrote:

Always max the 401k match.  You do have limits with it so index funds seem the basic option.  If you want to invest excess beyond the 401k match I would hit individual stocks in a separate account which give serious yield. MLPs, BDCs, Asset Managers seem a great place to look at.  Interest rates will play an important role, but unlike others I am of the view that we will not see any serious interest rate rises for years and years.  Maybe some token raises but not like what we saw back during the Volcker years.  Ignore pundits who try to argue otherwise, they will cost you money.

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#3) On August 17, 2014 at 10:37 AM, ThePoulTrend (70.25) wrote:

Jameson477 , Thanks for your comments. I like your ideas in regards to the Vanguard, but am unsure if it would be best in me to buy shares in VHT,VCR,MGK,VUG,MGC. These ETF's are all up over 80% since September 22, 2011, not counting Dividends.  What Vanguard ETF's would be best match for myself?

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#4) On August 17, 2014 at 10:41 AM, ThePoulTrend (70.25) wrote:

Awallejr, BDC's?? I have not heard of this term before. MLP's are a great recommendation. What are some of your favorite MLP's in the Solar Sector, or in Security ?

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#5) On August 17, 2014 at 12:28 PM, awallejr (77.67) wrote:

BDCs are business development companies.  They are obligated to return 90% net income out as dividends to maintain its status.  Some examples are ARCC, PSEC, AINV.  As for MLPSs there is a current article on the front page of this site which gives a rundown.  The ones I own are BBEP, WPZ, RGP.  Asset managers can be worth taking a look at too like BX, KKR, FIG.

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#6) On August 17, 2014 at 2:27 PM, Jameson477 (< 20) wrote:

I meant to add this to my first post, but today is the day to get started.  I would have said the same thing in 2006 (before the "crash"), 2009 (after the "crash"), 2011, 2012...  The market is fickle and goes up and down (sometimes significantly), but as a whole it has gone up.   I would also suggest that you not get too fixated on chasing returns.  If you invest your $1000 and $150 per month for the next 40 years and earn the historic average of 10% you will have $1,000,000.  

I haven't spent too much time examining ETF vs buying the funds directly.  I can say that if you are paying $5 a trade for $150 for an ETF you would effectively be lowering your return by over 3%. By comparison, the Vanguard Total Market Fund's fee is only 0.05% once you have $10,000 invested (0.17% with less tnan $10,000).

That being said, VTI is the ETF of Vanguard's Total Market fund and is up about 75% since 22 Sept 2011 not counting dividends and >85% counting dividends.  I add that just as a comparison to your numbers above.  Regarding the specific ETFs you mentioned... Recently, my wife and I have been discussing the potential in Vanguard's Health Care Fund and I do own growth funds at another brokerage (USAA).  Personnally, I view these as riskier/more agressive than a Total Market or S&P 500 index fund and therefore hold them outside of my retirement accounts.  I would suggest a priority should be made of maxing both your IRA (and your spouse's if/when you are married) and your 401k prior to investing significantly in non-retirement accounts.

Regarding MLPs, generally they are viewed as tax effecient investments and therefore are not best placed in retirement accounts.  MLPs also have some tax implications that shouldn't scare you away, but you should look into them and understand them before investing. 

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#7) On August 17, 2014 at 6:51 PM, rd80 (97.08) wrote:

I think it's far more important that you get started than where you start.  It's pretty simple to transfer an account if you decide later that something else is a better fit for you.  Like most things, you'll get better and learn more as you get more practice.

As far as a brokerage versus a mutual fund account, a few things to consider.

Are you interested in investing in individual stocks or exchange traded funds?  If so, you'll need to open a Roth IRA brokerage account. Note, almost all brokerage accounts allow you to buy and sell open-end mutual funds.  If you go this route, its a not so simple job of comparing the services, commissions and fees for what you expect to be doing and picking the best fit for you.

IMHO, the stocks vs funds decision factors heavily on how interested you are in following financial markets and how much time you're willing to spend researching buys, deciding when it's time to sell, basically managing your portfolio.  If you're not willing/able to put in time doing that, or would rather spend your free time doing other things, ETFs or mutual funds are probably a better fit for you.

As Jameson mentioned, consider commissions carefully.  At the levels of investment you describe, you'd probably want to let several contributions add up before making a buy with a brokerage account; otherwise, the commissions will eat up a sizeable chunk of your investment.  Many mutual funds will let you buy directly with no fees, particularly if you set up automatic, regular contributions. Most of the big fund firms also offer brokerage accounts.

As you go through the process, please consider updating your progress, questions, what you found, etc on your CAPS blog.  Could be helpful to other new investors as well as for a few of us older hands who could use a refresher.  Also makes for a good journal for sometime in the future when you ask yourself, 'why in the heck did I do that?'

FWIW, I have a Roth and Traditional IRA at WellsTrade brokerage with both stocks and mutual funds in each account.  My wife's Roth and Traditional IRAs are in T. Rowe Price mutual fund accounts.

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#8) On August 19, 2014 at 11:07 AM, griderX (97.27) wrote:

FYI:  If you open a Schwab Roth IRA you can trade their own low cots ETFs commission free, makes buying small positions monthly less of a finanical burden.

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