What to do with a relatively small Roth IRA account?

[Magnus357]

I'm 24 years old and have been saving in earnest for about a year and a half now. I've been contributing to my E-Trade Roth to the point where I have about $8,000 in it now.

My investment plan as of now is a buy-and-hold strategy centered around a diverse index fund portfolio.

The problem I have is that all of the index funds I'm interested in investing in have $3000 minimums? How can I diversify when I can't only hold about two funds?

Up until recently, I've just had on E-Trade international index fund, and I've recently branched out to one Vanguard fund.

Am I missing something or is the period when you're saving up to the 50 - 100k level a time when your diversification options are limited?

 

[Brat]

At your age 100% equities would work fine. Buy whichever indexes you plan to comprise the largest portions of your portfolio first, then work down the rest of your plan in order of %. You can usually add to a holding in $500 - $1,000 amounts, balance through additions.

It is so tempting for someone at my age to talk about looking for moves in various market segments, but you have a long time horizon so it won't matter much at what point in the market cycle you buy an index.

Some would say just buy a total market index. That might work for some, but I suspect you want to have a bit more control.

 

[LOL!]

First, you gotta have more patience.
Second, you could simply purchase a lifestyle, target retirement, or "fund of funds" fund that has the asset allocation you want.
Third, you could purchase ETFs (exchange traded funds).

Since it's a Roth, there are no consequence to exchanging or selling.
See also The Seeking Alpha ETF Investing Guide - Seeking Alpha especially the "The Getting Started Problem"

You could purchase VTI and VEU and be all set for quite a while. Add DLS later.

 

[IAmTheSlime]

In your situation I would probably put $5k into the total stock market index and $3k into the total international index. Then I'd probably wait until I got another $5k and put $2k more into TSM and $3k into a small cap value index. From there you should be able to slice further and/or add to those 3 funds with new money. Just my opinion, of course!

 

[W2R]

I'm 24 years old and have been saving in earnest for about a year and a half now. I've been contributing to my E-Trade Roth to the point where I have about $8,000 in it now.

My investment plan as of now is a buy-and-hold strategy centered around a diverse index fund portfolio.

The problem I have is that all of the index funds I'm interested in investing in have $3000 minimums? How can I diversify when I can't only hold about two funds?

Up until recently, I've just had on E-Trade international index fund, and I've recently branched out to one Vanguard fund.

Am I missing something or is the period when you're saving up to the 50 - 100k level a time when your diversification options are limited?

I started my Roth last November, and contributed the max plus catchup (I'm 58 years old). I don't plan to withdraw anything from mine for about 25 years, though, so there are some similarities.

I do not know much of anything about investing, but I am trying to follow the spirit of authors such as Swedloe (if not their asset allocations to the letter). I'm concerned about diversification too, but eventually I will have it if I keep working at it. Some people would say to pick a target retirement fund, but I think those are boring and I would rather do things my way.

Soooo..... I put $5K in Vanguard's Windsor Fund (VWNDX) in November, and another $5K in Vanguard's European Stock Index Fund (VEURX) in February. As of today I already have $11,079. Who wouldn't be happy with this market? It could go down later, but I will just hang on. For 2008 I plan to get Vanguard's Total Stock Market Index Fund. For 2009 I plan to get a small cap index, and maybe Vanguard's REIT fund for 2010 if I feel more certain about real estate by that time.

At these small amounts, I can have some fun and learn something at the same time.

 

[GatorBuzz]

I just opened my first Roth about two weeks ago. I put 4k in a Vanguard Retirement Fund. It was an easy way to diversify while at the same time keeping expenses low. I'm extremely new to the investing world so after quite a bit of reading, I went with this choice, b/c I found that the more I learned the more I realized I didn't know anything. I've got a ways to go, but I'm pushing forward. When the IRA gets up to 20 or 25k, I will probably either add some more funds to the Retirement Fund or do my own asset allocation. That's a few years down the road, though.

 

[Brat]

Magnus, Slime's suggestion has merit in MHO. Slice & dice can come after you have enough meat to chop.

 

[Magnus357]

I appreciate everyone's input.

I think I'm going to go with Slime's advice and move into the Vanguard Total Stock Market Index (VTSMX) fund.

I was already investing in an E-trade international index fund that has done well, so I think I'll leave the remainder in that fund for now.

Thanks again for the input.

 

[glock35ipsc]

For what it's worth, I have a Roth with Scottrade. It consists of:

VTI - Vanguard Total Stock Market ETF 70%
VEU - Vanguard FTSE All-World ex-US ETF 20%
BND - Vanguard Total Bond Market ETF 10%

I am 37 years old, and basically rebalance semi-annually. I add new funds twice a year, and buy enough of each to keep my allocation at 70/20/10. I'm not sure that at 37 I need the bond ETF just yet, but it's there.

Forgot to add, I started this Roth with $3200.

 

[mjarzoms]

Roth IRA on autopilot

Adding $4k per year on automatic pilot will grow it nicely, try to avoid the need to excessively tweak it. Personally I like Mr. Buffett, you can get 1 share of BRKB for $3650 or so.

Most of the index funds you pick have diversity built in. Just adding lots of different funds to your portfolio may not add much diversity as they can have similar holdings.

You can also diversify with ETF's. DIA, VGK, TIP, GLD, SLV, etc. are simple to buy without minimums.
ETFConnect - Home is a good source of information.

 

[Celany]

when I started my Roth, with Vanguard, I put everything into Vanguard Growth & Income (VQNPX). After I had more than 5K, I started putting money into Vanguard International Growth (VWIGX). After I had more than 5k in that account, I started splitting money between the two, until I had a 70/30 split. The reason I filled both to 5K, before working on balancing them, is because @ Vanguard, you pay a $10 fee/year on funds you've invested less than 5k in, until your account with them is over 50k (mine isn't quite there yet).

I think I might rebalance at some point to get a bit more agressive with my international investing. But I like having it split between the two, for diverisfication purposes. I think I'm reasonably covered & it's pretty easy to rebalance each year, when I can add more to my Roth.

 

[GatorBuzz]

I believe with Vanguard it is now up to $20 annually for every fund that is less than 10k. At least that is the case with my funds with them.