Opening up a Roth IRA

[Ponks]

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Speaking of which, I'm 21 and contributing my first $4,000 this year. I have a good amount already invested in VTSAX (Vanguard Total Stock Market) on Vanguard, and that's it so far. I was wondering what would compliment my portfolio well for the IRA. I was thinking a mid-cap index fund? I also plan to pick up an index fund of international stocks on Vanguard in the foreseeable future.

Thanks,
Ponks

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Pick a balanced fund until your account balance grows large enough to effectively 'slice and dice' your asset allocation with different funds.

You could choose a target retirement fund, lifestrategy fund, wellington, or star.

-Matt

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I think I was looking for something more aggressive in my earlier years. (The Mid-cap index funds would be more aggressive, right?) Something such as the Mid-Cap Index Fund Investor Shares (VIMSX) or possibly the Vanguard Mid-Cap Growth Fund (VMGRX). Then as I get older I could move the money around into a more balanced/less risky portfolio? I'd be left with Large Cap/International Cap/Maybe some Small-Cap in my regular portfolio and Mid-Cap in my IRA which would slowly develop to less volatile as I become older. Just my ramblings, what do you think of this?

Thanks,
Ponks

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Ponks,

To be totally honest, I think you should become very informed on the topic of asset allocation, the efficient frontier and passive investing. Just google those, read around for a while and you'll get the picture eventually.

You question is complicated so it requires a lot more than I can answer in one post.

But if you want the short story, my recomendation is still the same.

Goodluck,

-Matt

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Hey Matt,

Thanks for the quick reply. I have read 3 or 4 books in the past year, perhaps I should re-read some of them. Also ordered a few more a few months ago, but haven't had much time to read them yet, should have time in the Summer. The frontier/passive investing is investing in things such as I have mentioned, bonds, and REITS, as far as I remember? I will plan to get into some bonds and other things as well, but not until I am older. I'm 21 and willing to go pretty risky now, is asset allocation really that important when you are still so young? Also at Vanguard, do you know it it's easy to switch around the funds in your IRA, any fee?

Thanks,
Ponks

[Ponks]

I plan to have my portfolio well diversified in the future to something like below, but I'm a few years out from that. Reason being is I wanted to invest in VTSAX rather then VTSMX for the lower fees. (need a min balance for the lower fee)

~30-40% Total Stock Market
~10-15% US Mid Caps
~10-15% US Small Caps
~5-10% Bond Fund
~20-30% International Fund (likely even diversified further)
~5-10% REIT Fund

I'm just wondering the best way to start off my IRA. I was thinking to start off aggressive with the Mid-cap and then work it into something balanced. So it's like I have 2 totally seperate yet diversified portfilio in the same respect portfolios. Or is this a bad idea? How should I view my roth IRA compared to my regular portfolio?

Thanks,
Ponks

[Ponks]

Sorry for totally hijacking this post, I should've just started my own.

I was just doing some more research and it looks like there may be a Vanguard Dividend Stock coming out shortly. It seems to me that this would be a good Roth IRA investment, yea? and then just try to balance this with my regular portfolio? My Roth portfolio will be completely dwarfed to my regular portfilio though...but this seems like good asset allocation to toss into the mix ?

Thanks,
Ponks

[ColdCaller]

Don't worry about it. I am learning a lot from the hijack. [img]/images/graemlins/smile.gif[/img]

[mwgr5]

Ponks, invest in the Vanguard total international stock market index. I wouldn't want all of my money invested in the US because of future problems such as Social Security, National Debt, and Medicare.

By holding these two funds your are essentially totaly diversified. Grow assets in these two funds and gradually rollover part of the assets into different vanguards funds to complete your suggested asset allocation.

[MatthewRyan]

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Sorry for totally hijacking this post, I should've just started my own.

I was just doing some more research and it looks like there may be a Vanguard Dividend Stock coming out shortly. It seems to me that this would be a good Roth IRA investment, yea? and then just try to balance this with my regular portfolio? My Roth portfolio will be completely dwarfed to my regular portfilio though...but this seems like good asset allocation to toss into the mix ?

Thanks,
Ponks

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No.

[MatthewRyan]

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I plan to have my portfolio well diversified in the future to something like below, but I'm a few years out from that. Reason being is I wanted to invest in VTSAX rather then VTSMX for the lower fees. (need a min balance for the lower fee)

~30-40% Total Stock Market
~10-15% US Mid Caps
~10-15% US Small Caps
~5-10% Bond Fund
~20-30% International Fund (likely even diversified further)
~5-10% REIT Fund

I'm just wondering the best way to start off my IRA. I was thinking to start off aggressive with the Mid-cap and then work it into something balanced. So it's like I have 2 totally seperate yet diversified portfilio in the same respect portfolios. Or is this a bad idea? How should I view my roth IRA compared to my regular portfolio?

Thanks,
Ponks

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Ponks,

This soudns like a fine asset allocatin, except I would not want bonds to be lower than 15%, and really I'd rather see the minimum around 20%. 80/20 stock/bond is < .5% off from 100% stock fyi.

As far as what exactlt to do now with the money, I still recomend a balanced fund of some sort. This is primarly because you will not be able to buy all of the funds you listed in those proportions without like $100,000 because of fund minimums/ fund fees working against you.

Given your proposed asset allocation above, I would recomend you put your IRA money into the target retirement 2045 - @ 70% TSM, 12% TBM, 12% European stock and 6% Pacific stock - it is very well diversified and takes on a good amount of risk.

Just build up your Roth with TR2045, and in the future when your balance is large enough you can change things up to the exact slice and dice portfolio that you wish. This is the best possible choice by far IMO.

Also, it is very easy to change funds @ Vangaurd within an IRA. However, in a non-IRA there would be tax consequences which would complicate things.

You proposed the idea of starting with just mid-caps (which may perform like... who knows?) and then working up a balanced fund along the side - "So it's like I have 2 totally seperate yet diversified portfilio in the same respect portfolios. Or is this a bad idea?"
Yes - you need to think of your investments as one porfolio with one overall asset allocation.

Summary in short: while you balance is 'low', it is better to pick a fund of funds that has an asset allocation similar to that which you desire. When you balance is 'high', it is possibly better to buy each fund in your portfolio individually and rebalance each year yourself.


I hope this helps,
Matt

[MatthewRyan]

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Don't worry about it. I am learning a lot from the hijack. [img]/images/graemlins/smile.gif[/img]

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haha good

[mwgr5]

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I'd rather see the minimum around 20%. 80/20 stock/bond is < .5% off from 100% stock fyi.


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I think this 20% figure is too high. At 21 Ponks still has 40+ years until retirement. He can afford to be more risky at this age. Although bonds do lower risk more than return, I think Ponks should be trying to maximize return because time is the ultimite risk reducer. The decision is really dependent on Ponk's personal risk level though.

A balanced fund is a fine idea. However, a large amount of stock overlap will occur by holding the total stock index and a balanced fund. Also, again I think holding a balanced fund may be to conservative because of the bond percentage allocated by these funds. I would again suggest the total international stock market index. Then build up a portfolio around these two core funds.

[Ponks]

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Just build up your Roth with TR2045, and in the future when your balance is large enough you can change things up to the exact slice and dice portfolio that you wish. This is the best possible choice by far IMO.



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I think this is a good idea, then I really don't have to worry about balancing it much with my regular portfolio. I have 100k invested it VTSAX right now and am contemplating what my next purchase will be. Investing so much in this is probably a mistake now that I look at it, but I really wanted the lower expensive ratio of having the admiral shares and figured it would start a good solid base. I was thinking that with myself 100% invested in the Total Stock Market Fund that I should work on some of the International Funds? and then the Bonds or small caps? Does the order really matter that much? I'm trying to invest $8k per month so I should be able to catch up these other ones to a good asset allocation pretty quickly to my Total Stock Market Fund.

To those mentioning risks, I am willing to go pretty risky as I am 21. I will pick up some more of the bond stuff when I am older, but do not care much for it now, bad thinking? I have heard that you should have your age in terms of percent bonds (think I read that in a book). This seems like alright advice, but a little conservative for me, and I figure I'll start working on that when I'm 25-30 year old?

Also, thanks to all that have replied, I have really learned a lot this thread!!

Thanks,
Ponks