Author Topic: Where should I invest the funds inside my IRA?  (Read 239 times)

archistache

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Where should I invest the funds inside my IRA?
« on: January 11, 2019, 02:14:38 PM »
I'm brand new to the FIRE movement and MMM, and am wondering how best to invest the money that's within my IRA. Can I direct it towards index funds?

Boofinator

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Re: Where should I invest the funds inside my IRA?
« Reply #1 on: January 11, 2019, 02:49:21 PM »
Yes, and you probably should. A couple questions:

Who is the IRA custodian? (e.g. Vanguard? Fidelity?)

What does your investment horizon look like? Are you a long, long ways from retirement? (This will determine the best asset allocation for those funds.)

archistache

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Re: Where should I invest the funds inside my IRA?
« Reply #2 on: January 11, 2019, 03:01:17 PM »
Yes, and you probably should. A couple questions:

Who is the IRA custodian? (e.g. Vanguard? Fidelity?)

What does your investment horizon look like? Are you a long, long ways from retirement? (This will determine the best asset allocation for those funds.)
It's with Wells Fargo. But I'm open to switching to something like Vanguard or Fidelity if that's considered an advantage. I'm a long, long way from retirement. Have no significant savings or investments. Paying off my credit card debt (~$5,000) and building up an emergency cash reserve before I start any significant investing. But I would like to do a little investing now, mostly to get myself in the mindset of investing and learn quickly.

Boofinator

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Re: Where should I invest the funds inside my IRA?
« Reply #3 on: January 11, 2019, 03:15:58 PM »
I'm a Vanguard fan, and highly recommend their services. One of the great things about the company (in my opinion) is that it is client-owned (that is, it is owned by the investors), and of course their really low fees. https://investor.vanguard.com/what-we-offer/why-vanguard

Low-cost index funds are the way to go. As you are just starting out with little other investments, you may want to start with a simple index (like S&P 500 or Total Stock Market) or a LifeStrategy / Target Retirement Fund (these are funds of funds, https://investor.vanguard.com/mutual-funds/all-in-one-funds). Either way, since you have an extremely long investment horizon for these funds, you want to maximize the expected returns by going very heavy stocks (this is going to result in a lot of volatility, which you have to be ok with).

If you don't mind, let's take a step back and talk about investment strategy:

Do you have any retirement plan options at work?
If so, do those plans offer any kind of matching?
Are you choosing a traditional or Roth IRA?
What interest rates do you have on your debts?

archistache

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Re: Where should I invest the funds inside my IRA?
« Reply #4 on: January 13, 2019, 09:14:46 AM »
I'm a Vanguard fan, and highly recommend their services. One of the great things about the company (in my opinion) is that it is client-owned (that is, it is owned by the investors), and of course their really low fees. https://investor.vanguard.com/what-we-offer/why-vanguard

Low-cost index funds are the way to go. As you are just starting out with little other investments, you may want to start with a simple index (like S&P 500 or Total Stock Market) or a LifeStrategy / Target Retirement Fund (these are funds of funds, https://investor.vanguard.com/mutual-funds/all-in-one-funds). Either way, since you have an extremely long investment horizon for these funds, you want to maximize the expected returns by going very heavy stocks (this is going to result in a lot of volatility, which you have to be ok with).

If you don't mind, let's take a step back and talk about investment strategy:

Do you have any retirement plan options at work?
If so, do those plans offer any kind of matching?
Are you choosing a traditional or Roth IRA?
What interest rates do you have on your debts?

My employer does not offer any retirement plan. I currently have a traditional IRA. My credit card debit is about $5,000 at 0.99% APR permanently (not an introductory rate.) Have a car loan of $12,825 at 3.69% (I'm considering selling it and getting a high mpg call for a few thousand cash.) And have a mortgage of $180,000 at 4.625%.

Boofinator

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Re: Where should I invest the funds inside my IRA?
« Reply #5 on: January 13, 2019, 04:55:56 PM »
If I was in your position, I'd let those low-interest debts ride, and try to max my equity investments (selling the car might be a very good option as well if you can find something cheap and reliable). You're doing a good job maxing your traditional IRA, which should be fully deductible since you don't have an employer retirement plan. Consider looking at your fees at Wells Fargo, and switching to a better custodian if you can get a better deal (which you almost certainly can). You need to determine your investment plan, which should be heavy in equities at this stage. Lastly, consider a taxable account for any leftover money (also heavy equities).

Remember, investing in equities is playing the long game. If you keep feeding the beast, you'll be wealthy before you know it. Good luck.