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Roth time!
Old 10-06-2007, 12:46 PM   #1
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Roth time!

So.... after scrimping and saving (it wasn't that painful) i've got my base $3k to open my roth

I'm excited to join the club and open it in Vanguard.

My 403b is pretty evenly split w/ small, mid and large index funds, reit and one international...

Here's my preguntas:

1) It's not that much money and won't be that much each year - so should I still split it with the small, mid, large index-y funds or put it in 1 or 2

2) i'll consider the target ones (i'd just choose the most aggressive 2050) cuz it's simple but i'm still wavering if i should choose separate funds. (what are the pro's cons?)

3) if i chose separate ones, which would you suggest in each category?

VGTSX or VTRIX
and the small, mid and large index or value index in each category? or something i haven't considered...

i'm young and have a pretty hi risk tolerance....
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Old 10-06-2007, 12:57 PM   #2
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Personally, I'd just pick one fund. You want to have a balanced overall portfolio, so it doesn't matter if your Roth is not diversified. And your overall portfolio is already diversified. You'd just be duplicating what you already have.

I've got several different Vanguard funds myself, so it is all about what fits your portfolio. My wife and I have two Roth's, one in Small Index, the other in Small Value Index.

No amount is too small for investing! Congratulations on scraping that $3,000 together.
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Old 10-06-2007, 02:02 PM   #3
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2) i'll consider the target ones (i'd just choose the most aggressive 2050) cuz it's simple but i'm still wavering if i should choose separate funds. (what are the pro's cons?)
One of the "pros" of a target fund is......like Ron Popeil used to say......"You just set it, and forget it." That's why I used a target fund for my Roth IRA....it's simple and requires no muss or fuss. I'm happy with it, but YMMV.
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Old 10-06-2007, 02:37 PM   #4
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Choosing the funds is the fun part of opening your Roth! I did the same last November. I started by contributing $5K (including over-50 catchup) to Vanguard's Windsor fund for 2006. Then in February I contributed another $5K for 2007 to Vanguard's VEURX European Stock Index fund. Who knows if these were the optimal choices? If not, then I figure I will be learning on the fly. My idea is to keep adding funds each year, as permitted until I have a good asset allocation going.

I have been having a ball, and right now I have something like $11.4K in my Roth for a $10K investment after just a little over 10 months. So my recommendation is to do all the research you can, study it to death, make your best choice, and go for it. Then hope for the best and be open to learning as you go! Next year you can select another fund if you want.
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Old 10-06-2007, 05:27 PM   #5
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I'd also stick with one fund, as others have suggested.

Using Roth's can be fun. It can also be educational. This got me thinking about how mine evolved over the last 3 years:

Balance
12/07/2004 - $2,983.44 - Bought E-Bay @ 57.22
09/22/2005 - $1,945.72 - Sold E-Bay @ 37.63 (ouch)
09/22/2005 - $1,930.14 - Bought Apple @ 51.87
06/05/2006 - $2,224.88 - Sold Apple @ 60.35 (should have held longer)
10/24/2006 - $6,423.18 - Bought Intel @ 21.59 (what was I thinking?)
04/09/2007 - $5,970.53 - Sold Intel @ 20.14

This was the play roth (fun money). With are other Roth I was more conservative, stuck with an index fund, and it actually did well.

The educational part was realizing that I was really bad at pick individual stocks and I'm better off defining an asset allocation and sticking with it.

Btw, this one's now in a REIT and it's up 12.95% so far. I should have done this years ago...
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Old 10-06-2007, 06:11 PM   #6
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bright eyed,
Congrats on the milestone.
As you know already, there's no "right" answer on where you should put your Roth IRA $$. First, don't fret over this too much. The important thing is that your overall portfolio (403B + Roth IRA + taxable stuff) has the allocation you want, you should put your Roth money wherever it needs to go to give you the balance you need. And, the good thing about the Roth is that you can change your mind at any time without any tax consequences (though the individual funds may charge you a fee for early trading).

If you feel like you know enough about asset allocation principles (or want to learn with "real money), then plunge right in with the purchase of a fund that completes your overall picture.

The target fund has some nice features, especially the wide variety of holdings built into it and the automatic rebalancing. You can plunk the money in there for a few years until the pennies pile up and you feel the itch to fine-tune your holdings. As you probably know already--if you just put them int e target fund and never touch them again, you'll be way ahead of the results most investors get.
One other consideration: This might be a good place to add assets that aren't available in your 403B. Do you have a desired asset allocation "piece" that you are having trouble getting in the funds offered by your 403B broker? (for example, if you wanted to tilt toward value stocks but there were no value funds offered in your 403B, you could buy Windsor II (VWNFX), US Value Fund (VUVLX), or Value Index Fund (VIVAX), etc)
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Old 10-06-2007, 07:02 PM   #7
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i'll consider the target ones (i'd just choose the most aggressive 2050) cuz it's simple but i'm still wavering if i should choose separate funds. (what are the pro's cons?)
If you're thinking target fund make sure you look at the T Rowe Price Retirement funds in addition to Vanguard.....if you plot TRRJX (TRP 2035 fund) vs VTTHX (Vanguard 2035 fund) you'll see that TRP has outpaced Vanguard over the past 3.5 years or so (since TRP 2035 inception).....of course who knows if this will continue, but I like the TRP 2035 asset allocation enough to where I'm moving SOME of my Van TR2035 Roth IRA funds to TRP.....my plan (for now) is to keep 75% of my total retirement stash in passive index funds (Van TR 2035 possibly tweaked with a couple index fund tilts), and 25% in actively managed funds (TRP 2035 and Fidelity 2035).....I'm willing to give those stock pickers 25% of my stash to see if they can beat the market over the next 30 years.....unlikely, but maybe. I have access to Fidelity Freedom 2035 fund in my 401(k) and may leave a little in that so I can track my personal rate of return for all three target funds to see which one wins.....I'll let ya know in 30 years Just make sure ya keep an eye on fund expenses if ya decide to go with an actively managed fund. Even Bogle doesn't put all of his stash in index funds
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Old 10-07-2007, 03:15 PM   #8
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thanks for the advice, i will take a closer look at what i have and what vanguard has to see if i can fill a hole...i feel much better about the simpler approach...!
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Old 10-08-2007, 12:14 AM   #9
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I thought Vanguard has a minimum of $3,000 per fund. It's been a while and I can't remember for sure now. In any case, target funds seem to be reasonable choices, Vanguard or otherwise. Congrats on getting started with ROTH--it's nice to know some money is truly yours, not partly the government's.
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Old 10-08-2007, 06:13 AM   #10
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I thought Vanguard has a minimum of $3,000 per fund. It's been a while and I can't remember for sure now. In any case, target funds seem to be reasonable choices, Vanguard or otherwise. Congrats on getting started with ROTH--it's nice to know some money is truly yours, not partly the government's.
STAR fund requires only $1000
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Old 10-08-2007, 07:48 AM   #11
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Congratulations on opening a ROTH!

I tend to view all of our accounts as one portfolio - so, in your case I would fill ROTH with whatever better fits my overall allocation. This may be an asset class that is not offered in your work plan(s) or a class that is represented with poor choices in your work plan(s).

All else being equal, I would load ROTH with equities only. I would take on more risk with my ROTH holdings hoping for max return leading up to the biggest tax free balance possible. I would keep all of my bonds/cash in tax deferred accounts since they will be taxed as income only anyway. If you do this, your ROTH balance may be quite volatile, but your overall portfolio should be fairly stable (based on allocation of your choice).
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