Opened up Vanguard IRA at 20. What to invest in?

[Marjimmy]

Hello all,

My situation is this, I'm 20 and plan to deposit 5,000 every year from now until retirement. I opened a Roth IRA with Vanguard and am wondering what are some top stocks / funds / index you want to start off with. Do I invest the full 5,000 at a given time or do I divide it up in portions for the dollar cost averaging. I currently have the full 5 with Vanguard LifeStrategy Growth Fund (VASGX) and plan to put another 5 next year into the 2060 retirement fund. Am I headed on the right path? Thanks fellow moneymanagers.

-Marjimmy

[grantmeaname]

I didn't think the retirement funds were a great fit for my needs when I opened my Roth IRA at the beginning of the month. I went with VTSMX for now and I'll add something else (total bond, in a small amount) whenever I'm finally in a position to be contributing to a 401(k).

[lauren_knows]

VASGX is just a Vanguard fund with a predetermined mix of Vanguard Total Market, Total Bond, and International funds.  Those 3 are pretty much what are discussed as the "Lazy Portfolio" at Bogleheads, and is a decent choice. 

If you're ok with the asset allocation between those 3 funds within VASGX, it's not a bad place to put your money. The fees are pretty low.

[hoppy08520]

Hello all,

My situation is this, I'm 20 and plan to deposit 5,000 every year from now until retirement. I opened a Roth IRA with Vanguard and am wondering what are some top stocks / funds / index you want to start off with. Do I invest the full 5,000 at a given time or do I divide it up in portions for the dollar cost averaging. I currently have the full 5 with Vanguard LifeStrategy Growth Fund (VASGX) and plan to put another 5 next year into the 2060 retirement fund. Am I headed on the right path? Thanks fellow moneymanagers.

-Marjimmy

It's hard to answer this question in isolation. What about investments in other accounts such as 401(k), taxable, etc.? Whatever you do for your IRA should be considered along with your other accounts so you have a coherent total portfolio. And what drove you to select Roth IRA over deductible traditional IRA? If you're 20 years old, have low income and therefore low (or no) tax rate, then Roth IRA is probably the right choice for now, but it might not be during your entire working career.

As for specific funds, assuming this is your total portfolio, I don't think I'd mix LifeStrategy and Target Retirement. Both are composed of the same underlying funds anyway. I'd just pick one or the other for simplicity.

[Marjimmy]

Well I'm currently in the military so a 401k doesn't apply right now. The ROTH is all I have to start off with. So if I'm rolling with Life Strategy, what are some other good funds to look into with higher risk / return.

[Karl]

Have you checked into the retirement funds available to you (TSP)?  The expenses are usually quite low and I believe, from talking to former active duty friends, that you have a Roth option there as well.

[JohnGalt]

Well I'm currently in the military so a 401k doesn't apply right now. The ROTH is all I have to start off with. So if I'm rolling with Life Strategy, what are some other good funds to look into with higher risk / return.

I'm assuming your tax bracket is pretty low if you're in the military.  A traditional IRA may be a better option for you in the long run.

[grantmeaname]

I'm not sure why everyone feels compelled to tell you that someday it's conceivable that you might want a traditional instead of Roth 401k/IRA account. It's true, but it's not highly relevant and a Roth is the correct choice for now.

As far as what to put in it: like I said, I didn't think the Asset Allocation of the lifecycle funds was appropriate, so I eschewed them in favor of just getting VTSMX. When your portfolio is that little (and mine is), there's not much to be gained from diversification. Somebody our age would probably be better off with something like a 90/10 or 95/5 stocks/bonds asset allocation, but 100/0 is really pretty close to that.

[Marjimmy]

Well maybe it'd be better off to mention that I'm getting out next year and plan to go to college for Engineering so the military funds are no longer my best option. I plan to go risky now and make the best out of it since this is long term. Was just interested what a few good funds to start off were and debating what to put my next 5 into next year. Thanks for the replies.

[frugal_engineer]

When you're so young and able to ride out many stock market ups and downs, the best thing to do would be go very aggressive (high  of stocks ie. 90%+) as mentioned above.  Just toss in the 5k each year and forget about it.

[capital]

The book "A Random Walk Down Wall Street" gives you a bit more background about why what you're doing makes sense, and a few possible other ways you could distribute your portfolio. But if you don't want to put in the time, the Vanguard Target Retirement Date funds are pretty set & forget, and are sensible options.

[capital]

Well I'm currently in the military so a 401k doesn't apply right now. The ROTH is all I have to start off with. So if I'm rolling with Life Strategy, what are some other good funds to look into with higher risk / return.

I'm assuming your tax bracket is pretty low if you're in the military.  A traditional IRA may be a better option for you in the long run.

Unless I'm misunderstanding, this is the opposite of what I'd think-- since a Roth is post-tax and he's in a low tax bracket now, and he has a very long term for returns to compound, it makes sense to pay the taxes now, rather than on the high rate of income he'll have when retired if he carries out his savings plan. The Roth will also be a lot less appealing once he gets an engineering degree, which will move his marginal income up several tax brackets.

I suppose it might be possible for him to contribute to a traditional IRA pre-tax now, then roll the money over into a Roth IRA when he's a student and has very low income and thus very lightly taxed, and the conversion would be taxed very lightly or not at all. That'd be a pretty clever move, if handled properly. That'd require research to see if it makes sense-- it's just idle speculation on my part for now.