IRA or Betterment first?

[ricky bobby]

My Stache is just sprouting, and I'm just really getting started with investing (and saving for that matter).  Here are the high points of what I have, and why.

- $5,000 in a credit union money market account. Since my savings are just starting, I like to have quick access to the money. The interest is a waste of time at 0.1%, but better than sitting in savings.

- $2000 in checking.

- $1900 in an Edward Jones Roth IRA. I know I'm paying higher fees, but starting this account has helped me make some other business contacts. It's probably not worth the trade off, but I want to stick with Edward Jones for a while. This account was opened in January.

- $750 in Betterment. I opened this account last week. It's currently set at a 70 / 30 Mix.

My question is this. Should I concentrate on maxing out the IRA before moving forward on the Betterment account? Or should I continue to split available funds between the two until the IRA is maxed?

Are there really any advantages to either, since I'm currently not investing that much $?

Moving forward, I have about $1000 / month to invest.

[matchewed]

Generally it is advised that you max out pre-tax tax advantaged accounts (company sponsored accounts such as 401k's and the like), then max out IRA or Roth IRA depending on your taxation present and future, then to invest in after tax accounts.

But for any beginner a main takeaway is to minimize your costs to investing. Choosing Edward Jones and Betterment is not minimizing those costs. Picking simple basic total market index funds allows you to buy the time to research more about investing while building maintaining a solid foundation. Paying other people more money to do the same thing for you...

[pthomasson88]

Great job. You are off to a great start. Over the long term minimizing the costs of investing will pay off. If you are selecting investments for some other reason than achieving your desired investment return goals then you are probably needlessly paying for services you don't need. It's not your fault Edward Jones and Betterment are expensive. If they wanted your business, they too could offer a low cost alternative. Just go with the index funds and leave the money management fees for someone else to pay.

[milesdividendmd]

After you have built up an emergency fund you should always, always, always preferentially place your savings in tax sheltered accounts like IRAs, 401Ks and HSA's. 

With the IRA you both lower your current tax bill and your money grows tax free, which is a big deal over time.  A very big deal. 

Between the saved fees and avoidance of taxes you can easily have an additional 30-40% bigger nest egg 40 years from now.

I would run away from Edward Jones as fast as you can and focus on a low cost brokerage.  (you can roll over this money into a vanguard IRA easily.)  Stop the bleeding.

For more on the importance of tax free saving see this excellent post:

http://www.madfientist.com/retire-even-earlier/

Alexi

[buckkatherine]

Katherine from Betterment here. I appreciate the desire to seek low-cost products, but disagree with the grouping of Betterment and Edward Jones.

Betterment charges as little as 0.15% a year for advisory, trading, rebalancing, dividend reinvestment, and administration. Edward Jones starts at 1.50% for accounts under $500K, plus 0.30% for accounting and other administrative tasks.

Under any circumstances, using Edward Jones should be discouraged. But if ricky bobby is looking for advice while getting started investing, Betterment is a great low-cost option.

[milesdividendmd]

Buckkatherine,

At the risk of offending the orthodoxy, you are absolutely right. Betterment is a low fee passive investment provider which is much closer on the spectrum of fees to Vanguard than it is to Edward Jones.  Great product.

Alexi

[matchewed]

Nobody is offended. Everybody who disagrees is not disagreeing that Betterment is lower cost than Edward Jones. We disagree that Betterment is providing a service that is worth 0.15% when it can be comparable to a Vanguard target date fund which won't have that additional 0.15%. Or as I put it in my post above -

Choosing Edward Jones and Betterment is not minimizing those costs.

Now does anyone here think paying 0.15% more in fees for a nearly identical product is minimizing fees?

[Honest Abe]

Now does anyone here think paying 0.15% more in fees for a nearly identical product is minimizing fees?

Me.

[matchewed]

Now does anyone here think paying 0.15% more in fees for a nearly identical product is minimizing fees?

Me.

Got it paying more in fees is minimizing them...

[jstash]

Nobody is offended. Everybody who disagrees is not disagreeing that Betterment is lower cost than Edward Jones. We disagree that Betterment is providing a service that is worth 0.15% when it can be comparable to a Vanguard target date fund which won't have that additional 0.15%. Or as I put it in my post above -

Choosing Edward Jones and Betterment is not minimizing those costs.

Now does anyone here think paying 0.15% more in fees for a nearly identical product is minimizing fees?

But why would you buy a Vanguard Target Date Fund at 0.18% (2045 fund) when you could buy the comparable Vanguard ETFs for 0.15%? That's 0.03% man! And as we all know, getting the absolute rock-bottom cost on expense fees is literally the only thing that matters in investing.

[matchewed]

Nobody is offended. Everybody who disagrees is not disagreeing that Betterment is lower cost than Edward Jones. We disagree that Betterment is providing a service that is worth 0.15% when it can be comparable to a Vanguard target date fund which won't have that additional 0.15%. Or as I put it in my post above -

Choosing Edward Jones and Betterment is not minimizing those costs.

Now does anyone here think paying 0.15% more in fees for a nearly identical product is minimizing fees?

But why would you buy a Vanguard Target Date Fund at 0.18% (2045 fund) when you could buy the comparable Vanguard ETFs for 0.15%? That's 0.03% man! And as we all know, getting the absolute rock-bottom cost on expense fees is literally the only thing that matters in investing.

Because there is no target date ETF. The pitch that Betterment gives is that they will invest in different ETFs to give your portfolio an automatic balance of your desired AA with rebalancing. That is identical to what target date funds do. Actually getting less cost out of pocket for the similar investments is incredibly important. I never made claim that it was most important.