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ETF purchases in a Roth...
Old 02-09-2009, 06:41 PM   #1
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ETF purchases in a Roth...

Good evening fellow Dreamers!

I would like to ask a question about making purchases in a ROTH IRA account.

Lets assume the following:

1. A certain young dreamer decided invest exactly $5000 in their roth annually and that this was their primary investment vehicle for the time being.

2. With an asset allocation between two exchange traded funds;
10 % BND -Vanguard Total Bond Market and
90 % VTI - Vanguard Total Stock Market.

3. Uses Tradeking as account custodian.

What would be the best way to organize purchases in order to maximize return and minimize cost?

i.e.
Transfering $192 into the account bi weekly and making purchases systematically each 2-3 months be best, and making additional purchases when the market seems to correct itself by 6% at close?


Thank you,

Fatman22
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Old 02-09-2009, 07:53 PM   #2
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Best way? Move all funds to Vanguard and use the open-ended mutual funds instead of the ETFs. Take the $5000 you have for the 2008 Roth IRA and just invest now all at once in the Total Stock Market fund. Then if you absolutely must have bonds sooner rather than later, go ahead and exchange $3000 into the bond fund.
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What about expenses.
Old 02-09-2009, 09:17 PM   #3
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What about expenses.

Ok, I've thought about using mutual funds but the expense ratios are so much cheaper on VTI at .07 % expense ratio compared to the more expensive ratio on the mutual funds. What I was more curious about is how do others in this forum set-up their roth purchases.

-Fatman22
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Old 02-09-2009, 09:43 PM   #4
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Compare the commissions versus the ER and see if the small purchases make sense. I try to keep ETF transactions above $800 so my $8 commission doesn't get too onerous. That's still 1%, so you might have to hold for quite a while to make it up versus a cheap index fund. Mutual funds are probably more suitable for you. I have VNQ in my traditional IRA, but I bought it all as a block instead of multiple purchases.
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Old 02-09-2009, 09:52 PM   #5
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Quote:
Originally Posted by fatman22 View Post
Ok, I've thought about using mutual funds but the expense ratios are so much cheaper on VTI at .07 % expense ratio compared to the more expensive ratio on the mutual funds. What I was more curious about is how do others in this forum set-up their roth purchases.

-Fatman22
The expense ratios are NOT much cheaper. They are inconsequentially cheaper. And with ETFs you have to consider the differences between bid and ask (the spread) which even if just 1 cent is 0.023% (multiply by 2 for coming and going, or about 0.05%). And you got the commissions which could be free (say at WellsFargo) and you got the premium or discount to NAV.

I don't have a Roth but may get one this year. I will just transfer $11K all at once into it.
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