Author Topic: Retirement Clueless.. Need Assistance  (Read 3423 times)

BoostJunky

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Retirement Clueless.. Need Assistance
« on: October 17, 2018, 09:46:57 AM »
Hi Everyone

I just wanted to say this is a great wealth of information for people to use in planning their lives and I appreciate this website very much.

I am just in my 30s, and finally have a little bit of money to start putting into an IRA for my future. (Late I know). I am also self employed so no employer contribution.

Is the best route to create a TD Ameritrade account and go from there? I need assistance in picking mutual stocks etc, and figured that site is reputable enough to assist. My parents never drilled this into me as a kid and now I'm going to pay for it.

Looking to make monthly deposits from my checking account.
« Last Edit: October 17, 2018, 09:50:19 AM by BoostJunky »

TheHardenedInvestor

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Re: Retirement Clueless.. Need Assistance
« Reply #1 on: October 17, 2018, 09:51:40 AM »
Why TD Ameritrade and not Vanguard? Vanguard has the only correct structure in the entire mutual fund industry. What makes Vanguard different from its competitors is that it is the only investment company that is mutually owned by its investors. This gives Vanguard an advantage when it comes to beating the competition on costs. It also ensures that the company perpetually acts in the best interest of its investors. Consider Vanguard first and VTSAX and or VFIAX as your index funds to invest in. Set it, and forget it.

koshtra

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Re: Retirement Clueless.. Need Assistance
« Reply #2 on: October 17, 2018, 09:58:46 AM »
I agree with this. (And I have an Ameritrade account, because I indulge myself occasionally with stock-picking, so it's not just prejudice.) If you're not going to really go deep with investing you're way, way better off just going with a solid Vanguard index fund. Ameritrade makes its money by getting people to restlessly move their money from one place to another -- they get seven bucks every time you change your mind. So they're going to expose you to lots of reasons to change your mind. Just don't go there. Dump your extra money into a Vanguard index fund, on a regular schedule, and forget about it.

BoostJunky

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Re: Retirement Clueless.. Need Assistance
« Reply #3 on: October 17, 2018, 10:00:31 AM »
Thank you both for the advice, I will check out Vanguard first then.

sisto

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Re: Retirement Clueless.. Need Assistance
« Reply #4 on: October 17, 2018, 10:14:09 AM »
Don't count out Fidelity either. I have both and Fidelity is now offering some cheaper funds than Vanguard.

TheHardenedInvestor

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Re: Retirement Clueless.. Need Assistance
« Reply #5 on: October 17, 2018, 10:48:57 AM »
Don't count out Fidelity either. I have both and Fidelity is now offering some cheaper funds than Vanguard.

Fidelity is still a for profit company.

MDM

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Re: Retirement Clueless.. Need Assistance
« Reply #6 on: October 17, 2018, 11:17:35 AM »
Also consider a solo 401(k) plan, should your cash flow allow.

Any of Fidelity, Schwab, or Vanguard can work well, and in most cases one can stop there.  For a solo 401k, there are some unusual but not unknown situations (e.g., one desires both a Roth option and the ability to accept incoming tIRA rollovers) in which ETrade might work better than those three.

BoostJunky

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Re: Retirement Clueless.. Need Assistance
« Reply #7 on: October 17, 2018, 11:40:15 AM »
Created a Vanguard Roth IRA with a small deposit. Need to research Asset Mix's now.

TheHardenedInvestor

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Re: Retirement Clueless.. Need Assistance
« Reply #8 on: October 17, 2018, 11:46:29 AM »
Created a Vanguard Roth IRA with a small deposit. Need to research Asset Mix's now.

Well done. Solid decision. For your age and situation you should be 100% invested in stocks. Don’t let some convince you that you need bonds because you really don’t. You have a long investing timeframe ahead of you. Just make sure whatever money you invest always stays invested. Don’t use money you need, and don’t move it out during times of panic. Just buy more. If you do that, then you’ll be fine. Invest it into VTSAX or VFIAX is all you need to do. I use VFIAX.

BoostJunky

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Re: Retirement Clueless.. Need Assistance
« Reply #9 on: October 17, 2018, 11:48:56 AM »
Created a Vanguard Roth IRA with a small deposit. Need to research Asset Mix's now.

Well done. Solid decision. For your age and situation you should be 100% invested in stocks. Don’t let some convince you that you need bonds because you really don’t. You have a long investing timeframe ahead of you. Just make sure whatever money you invest always stays invested. Don’t use money you need, and don’t move it out during times of panic. Just buy more. If you do that, then you’ll be fine. Invest it into VTSAX or VFIAX is all you need to do. I use VFIAX.


Appreciate the advice, looks like $5000 is the max contribution per year. I need to figure out how I can auto debit the $416 a month from my checking now, haha.

I'll take a look at changing the asset mix, looks like it wants me 70/30 stocks/bonds.

Appears VTSAX requires $10,000 buy to invest in, I assume wait till I hit that point?

Appears I can contribute a remaining 4,499.00   , asks what mutual fund and gives me a billion options... any suggestions here or reading material to look up on?

(Apologies if these are incredibly stupid comments).
« Last Edit: October 17, 2018, 11:55:47 AM by BoostJunky »

sisto

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Re: Retirement Clueless.. Need Assistance
« Reply #10 on: October 17, 2018, 11:58:14 AM »
Don't count out Fidelity either. I have both and Fidelity is now offering some cheaper funds than Vanguard.

Fidelity is still a for profit company.
Sure, but they also still have 0 cost funds.

TheHardenedInvestor

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Re: Retirement Clueless.. Need Assistance
« Reply #11 on: October 17, 2018, 12:01:41 PM »
A Roth has a $5,500 annual contribution amount. If after that you want to invest more then just open a Vanguard non-retirement account (aka brokerage account).

Yes, the funds I listed do have $10,000 mins. You either have to use VTSMX or VFINX, which have $3000 mins but are equivalent funds.

For now you could use a target retirement fund which has a $1000 limit. Those do have bonds and foreign exposure.

That is your best option until you hit $3000 or more.

Automatic transactions are not available for Roth accounts. You need a brokerage account for that. The reason is because Roth’s have annual caps ($5,500). The fact you opened a Roth is great however as you want one of those started early to get a jump on the 5-year rule. Don’t worry about that. Just open a brokerage account as well and automatically invest via paycheck deductions that way and make Roth contributions just on demand when you want to. That is exactly what I do. 

MDM

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Re: Retirement Clueless.. Need Assistance
« Reply #12 on: October 17, 2018, 12:03:22 PM »
Appreciate the advice, looks like $5000 is the max contribution per year. I need to figure out how I can auto debit the $416 a month from my checking now, haha.

I'll take a look at changing the asset mix, looks like it wants me 70/30 stocks/bonds.

Appears VTSAX requires $10,000 buy to invest in, I assume wait till I hit that point?

Appears I can contribute a remaining 4,499.00   , asks what mutual fund and gives me a billion options... any suggestions here or reading material to look up on?
Max IRA contribution for 2018 is $5500.

See Getting started - Bogleheads and perhaps the 'Basic Terms' tab of the case study spreadsheet for pretty much what their names suggest.

neo von retorch

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Re: Retirement Clueless.. Need Assistance
« Reply #13 on: October 17, 2018, 12:03:30 PM »
Contributions to an IRA are limited by your federal government. At your age, the limit should be $5,500.

The choice between a standard (aka "traditional") and Roth IRA is based on assumptions you have to make about taxes. I did not see an explanation in this thread why you chose Roth over traditional. (Keep in mind that you can open both, and contribute up to $5,500 total split between them. You may want to open a traditional account with another $10 and do some research on which you think you'll want to contribute to going forward.)

VTSAX is a "level" of Vanguard's Total Stock Market index fund. There's also VTSMX with a $3000 minimum, or you can just buy the VTI ETF for now, if you cannot hit those minimums. There's really no downside to the ETF, and some really prefer it over the mutual funds. They are reasonably equivalent in most important ways.

Additionally, a solo 401(k) is a very nice option for the self-employed. I have one, and it increases my contribution limit massively. Where as your IRA has a limit of $5,500, I can put $18,500 into the 401(k) as as "employee" but I can also put additional funds as the "employer" with a much, much higher limit.

BoostJunky

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Re: Retirement Clueless.. Need Assistance
« Reply #14 on: October 17, 2018, 12:03:44 PM »
A Roth has a $5,500 annual contribution amount. If after that you want to invest more then just open a Vanguard non-retirement account (aka brokerage account).

Yes, the funds I listed do have $10,000 mins. You either have to use VTSMX or VFINX, which have $3000 mins but are equivalent funds.

For now you could use a target retirement fund which has a $1000 limit. Those do have bonds and foreign exposure.

That is your best option until you hit $3000 or more.

Automatic transactions are not available for Roth accounts. You need a brokerage account for that. The reason is because Roth’s have annual caps ($5,500). The fact you opened a Roth is great however as you want one of those started early to get a jump on the 5-year rule. Don’t worry about that. Just open a brokerage account as well and automatically invest via paycheck deductions that way and make Roth contributions just on demand when you want to. That is exactly what I do.

I owe you a drink sir or madam!

So basically, max the roth IRA per year at $5000 (have till this April to hit that number) then create seperate brokerage account (or solo 401k) that allows me to contribute the small i can outside the roth's cap.

I set my wife up 5 years ago with her employer fed roth, she contributes a couple hundred per month to that and she has her state pension she will get at 63

Figured it was time to look at our future here, better late than never.
« Last Edit: October 17, 2018, 12:08:49 PM by BoostJunky »

neo von retorch

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Re: Retirement Clueless.. Need Assistance
« Reply #15 on: October 17, 2018, 12:10:33 PM »
I owe you a drink sir or madam!

So basically, max the roth IRA per year at $5000 (have till this April to hit that number) then create seperate brokerage account (or solo 401k) that allows me to contribute the small i can outside the roth's cap.

No - it's $5,500. If you want to get tax advantages, the Solo 401(k) will be the best bet - assuming you are earning enough through your self-employment. But again, the tax advantage of a traditional 401(k) or IRA is that you do not pay taxes on your gross income now. You pay taxes later in life - for most people, when they start withdrawing from the IRA at 60 years old, or, if you want to retire early, you might convert it to a Roth at that time. In either case, it's treated as income at that time. The Roth works differently. You are putting money into that account after paying income taxes on the money. The benefit is that you never pay taxes on that money again, even if dividends are paid out, or the investment grows exponentially.

The choice between the two is this:
Are you paying more in taxes now than you will be when you want to pull the money back out?

A taxable brokerage works mostly like the Roth. You put money in that you've already paid income taxes on. However, the growth (capital gains) and dividends on that type of account will incur taxes.

BoostJunky

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Re: Retirement Clueless.. Need Assistance
« Reply #16 on: October 17, 2018, 12:13:55 PM »
I owe you a drink sir or madam!

So basically, max the roth IRA per year at $5000 (have till this April to hit that number) then create seperate brokerage account (or solo 401k) that allows me to contribute the small i can outside the roth's cap.

No - it's $5,500. If you want to get tax advantages, the Solo 401(k) will be the best bet - assuming you are earning enough through your self-employment. But again, the tax advantage of a traditional 401(k) or IRA is that you do not pay taxes on your gross income now. You pay taxes later in life - for most people, when they start withdrawing from the IRA at 60 years old, or, if you want to retire early, you might convert it to a Roth at that time. In either case, it's treated as income at that time. The Roth works differently. You are putting money into that account after paying income taxes on the money. The benefit is that you never pay taxes on that money again, even if dividends are paid out, or the investment grows exponentially.

The choice between the two is this:
Are you paying more in taxes now than you will be when you want to pull the money back out?

A taxable brokerage works mostly like the Roth. You put money in that you've already paid income taxes on. However, the growth (capital gains) and dividends on that type of account will incur taxes.

IN theory with my career now, I will be paying more in taxes when I withdraw the money later in life. (That's if I stay stable or progress in my career which is the obvious end goal).

neo von retorch

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Re: Retirement Clueless.. Need Assistance
« Reply #17 on: October 17, 2018, 12:18:12 PM »
The choice between the two is this:
Are you paying more in taxes now than you will be when you want to pull the money back out?

IN theory with my career now, I will be paying more in taxes when I withdraw the money later in life. (That's if I stay stable or progress in my career which is the obvious end goal).

You might be on the wrong forum ;) But, more seriously, when you are withdrawing the money, it's likely your only income, or it's supplemented by social security. In either case, you only withdraw as much as you need to spend. Assuming (ignoring inflation) that you build a life around spending $50k / year after a successful career... any year during your earning years where you have income greater than $50k would likely incur higher taxes than what you would incur in retirement.
« Last Edit: October 17, 2018, 12:19:54 PM by neo von retorch »

HamsterStache

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Re: Retirement Clueless.. Need Assistance
« Reply #18 on: October 17, 2018, 12:20:21 PM »

Automatic transactions are not available for Roth accounts. You need a brokerage account for that. The reason is because Rothís have annual caps ($5,500). The fact you opened a Roth is great however as you want one of those started early to get a jump on the 5-year rule. Donít worry about that. Just open a brokerage account as well and automatically invest via paycheck deductions that way and make Roth contributions just on demand when you want to. That is exactly what I do.

I am in a similar situation as OP and plan to open a Vanguard Roth IRA in 2019 as cash flow opens up a bit in the coming months. Unless I am misreading, it looks like automatic transactions are available though - https://personal.vanguard.com/us/insights/article/automatic-ira-contributions-012017?lang=en - am I misunderstanding something?

Also, I'm aware that you can contribute to 2018 Roth until tax day 2019 (assuming the limit has not been met yet) - if I make my very first contribution in January does it automatically get put into my "2018 IRA" since nothing was contributed this year? How does that work?

TheHardenedInvestor

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Retirement Clueless.. Need Assistance
« Reply #19 on: October 17, 2018, 12:21:09 PM »
A Roth has a $5,500 annual contribution amount. If after that you want to invest more then just open a Vanguard non-retirement account (aka brokerage account).

Yes, the funds I listed do have $10,000 mins. You either have to use VTSMX or VFINX, which have $3000 mins but are equivalent funds.

For now you could use a target retirement fund which has a $1000 limit. Those do have bonds and foreign exposure.

That is your best option until you hit $3000 or more.

Automatic transactions are not available for Roth accounts. You need a brokerage account for that. The reason is because Roth’s have annual caps ($5,500). The fact you opened a Roth is great however as you want one of those started early to get a jump on the 5-year rule. Don’t worry about that. Just open a brokerage account as well and automatically invest via paycheck deductions that way and make Roth contributions just on demand when you want to. That is exactly what I do.

I owe you a drink sir or madam!

So basically, max the roth IRA per year at $5000 (have till this April to hit that number) then create seperate brokerage account (or solo 401k) that allows me to contribute the small i can outside the roth's cap.

I set my wife up 5 years ago with her employer fed roth, she contributes a couple hundred per month to that and she has her state pension she will get at 63

Figured it was time to look at our future here, better late than never.

Sure no problem. You’re off to a good start. As people have already commented there are a lot of tax strategies and these are important to learn. Minimizing your taxable income now is important and  something to consider. I have an employer sponsored 401k so I get a lot of pre-tax saving ($18,500 / year). If you don’t have a employee sponsored 401k, then consider your other options. Never stop learning and you’ll be fine. There is always a lot of debate in the investing world, but when you boil it down, it’s not that complicated, even the tax scenarios. Best of success.

BoostJunky

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Re: Retirement Clueless.. Need Assistance
« Reply #20 on: October 17, 2018, 12:21:46 PM »
The choice between the two is this:
Are you paying more in taxes now than you will be when you want to pull the money back out?

IN theory with my career now, I will be paying more in taxes when I withdraw the money later in life. (That's if I stay stable or progress in my career which is the obvious end goal).

You might be on the wrong forum ;) But, more seriously, when you are withdrawing the money, it's likely your only income, or it's supplemented by social security. In either case, you only withdraw as much as you need to spend. Assuming (ignoring inflation) that you build a life around spending $50k / year after a successful career... any year during your earning years where you have income greater than $50k would likely incur higher taxes than what you would incur in retirement.

Yes, it could be my only source of income after retiring... not counting wifes pension, or roth IRA.

So in summary, so I understand, if I accumulated $1,000,000 from the Roth, at 59 1/2 I could IN THEORY pull that money out TAX FREE and put it all on red in Vegas. (Clearly not the plan).
« Last Edit: October 17, 2018, 12:23:24 PM by BoostJunky »

neo von retorch

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Re: Retirement Clueless.. Need Assistance
« Reply #21 on: October 17, 2018, 12:27:52 PM »
Yes, it could be my only source of income after retiring... not counting wifes pension, or roth IRA.

So in summary, so I understand, if I accumulated $1,000,000 from the Roth, at 59 1/2 I could IN THEORY pull that money out TAX FREE and put it all on red in Vegas. (Clearly not the plan).

Your other sources of income are expanding upon my point. The odds (if we're talking gambling!) are really against the Roth IRA for many earners.

To your question, lets assume you're 35. So over 25 years, you can contribute about $150k to a Roth IRA (assuming limits don't grow too much, and you start putting more in when you reach 50.) So growth to a million is... unlikely. But yes, you could pull all of it out without paying any further taxes.

Note that you can set up a solo 401(k) as Roth if you're so fond of it, and contribute over $50k per year (limited only to $18,500 + 20% of your net business income).

BoostJunky

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Re: Retirement Clueless.. Need Assistance
« Reply #22 on: October 17, 2018, 12:32:26 PM »
Yes, it could be my only source of income after retiring... not counting wifes pension, or roth IRA.

So in summary, so I understand, if I accumulated $1,000,000 from the Roth, at 59 1/2 I could IN THEORY pull that money out TAX FREE and put it all on red in Vegas. (Clearly not the plan).

Your other sources of income are expanding upon my point. The odds (if we're talking gambling!) are really against the Roth IRA for many earners.

To your question, lets assume you're 35. So over 25 years, you can contribute about $150k to a Roth IRA (assuming limits don't grow too much, and you start putting more in when you reach 50.) So growth to a million is... unlikely. But yes, you could pull all of it out without paying any further taxes.

Note that you can set up a solo 401(k) as Roth if you're so fond of it, and contribute over $50k per year (limited only to $18,500 + 20% of your net business income).

I should note, I work for a company, however  in sales (Real Estate) so I get W2'd end of year. (so I guess I'm not fully self employed). This likely doesn't qualify me for the solo 401k due to not owning the company (which I will down the road as it's a family business).

TheHardenedInvestor

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Re: Retirement Clueless.. Need Assistance
« Reply #23 on: October 17, 2018, 02:10:44 PM »

I am in a similar situation as OP and plan to open a Vanguard Roth IRA in 2019 as cash flow opens up a bit in the coming months. Unless I am misreading, it looks like automatic transactions are available though - https://personal.vanguard.com/us/insights/article/automatic-ira-contributions-012017?lang=en - am I misunderstanding something?

Also, I'm aware that you can contribute to 2018 Roth until tax day 2019 (assuming the limit has not been met yet) - if I make my very first contribution in January does it automatically get put into my "2018 IRA" since nothing was contributed this year? How does that work?

You are correct. I was wrong in that. You can setup automatic transactions on IRA’s through Vanguard. I just confirmed it as well in my own account. Thanks for pointing that out.

neo von retorch

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Re: Retirement Clueless.. Need Assistance
« Reply #24 on: October 17, 2018, 03:20:46 PM »
Yes the single downside to an ETF is the inability to schedule transactions since an ETF behaves like a stock rather than a mutual fund.
« Last Edit: October 19, 2018, 05:46:00 AM by neo von retorch »

SeattleCPA

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Re: Retirement Clueless.. Need Assistance
« Reply #25 on: October 18, 2018, 10:04:10 PM »
You might find the free downloadable ebook plugged in my signature a good resource.

BoostJunky

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Re: Retirement Clueless.. Need Assistance
« Reply #26 on: October 19, 2018, 09:05:30 AM »
OK, so checked today and the money funded from my account so I'm officially active. Weird thing is i set my asset mix to 100% stocks, and it defaults me to 100% short term reserves. I'm assuming it will switch over?


MDM

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Re: Retirement Clueless.. Need Assistance
« Reply #27 on: October 19, 2018, 09:11:12 AM »
...i set my asset mix to 100% stocks....
That is not sufficient, because one can be 100% stocks using many different funds, VTSMX/VTSAX being only one example.

You'll have to pick a specific fund and purchase it, using the money now in the account.

SunshineAZ

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Re: Retirement Clueless.. Need Assistance
« Reply #28 on: October 19, 2018, 09:26:41 AM »
Also, I'm aware that you can contribute to 2018 Roth until tax day 2019 (assuming the limit has not been met yet) - if I make my very first contribution in January does it automatically get put into my "2018 IRA" since nothing was contributed this year? How does that work?

(Assuming you are using Vanguard) On the page where you deposit or transfer funds, it will show both years, and how much you have contributed and how much you can still contribute for the year.  So when you transfer your money, you can select which year to apply the money.  So, you could put $11,000 into your account in January and fund both 2018 and 2019.

HamsterStache

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Re: Retirement Clueless.. Need Assistance
« Reply #29 on: October 19, 2018, 09:33:47 AM »
Also, I'm aware that you can contribute to 2018 Roth until tax day 2019 (assuming the limit has not been met yet) - if I make my very first contribution in January does it automatically get put into my "2018 IRA" since nothing was contributed this year? How does that work?

(Assuming you are using Vanguard) On the page where you deposit or transfer funds, it will show both years, and how much you have contributed and how much you can still contribute for the year.  So when you transfer your money, you can select which year to apply the money.  So, you could put $11,000 into your account in January and fund both 2018 and 2019.

Thanks! I guessed it would probably be obvious, but it's nice to know what to look for when I get this ball rolling. With my 0% car payments coming to an end, it's time to put that money to a better use!  Now to just make it through daycare payments and we'll really be talking ;-)

BoostJunky

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Re: Retirement Clueless.. Need Assistance
« Reply #30 on: October 19, 2018, 10:20:37 AM »
...i set my asset mix to 100% stocks....
That is not sufficient, because one can be 100% stocks using many different funds, VTSMX/VTSAX being only one example.

You'll have to pick a specific fund and purchase it, using the money now in the account.

So I would need to purchase the VTI VX or VTI NX

Although I thought I'd want something more Volatile at inception? VTI VX seems to be the way to go for my 30 year situation
« Last Edit: October 19, 2018, 10:25:59 AM by BoostJunky »

Rob_bob

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Re: Retirement Clueless.. Need Assistance
« Reply #31 on: October 19, 2018, 01:09:18 PM »
Ameritrade makes its money by getting people to restlessly move their money from one place to another -- they get seven bucks every time you change your mind. So they're going to expose you to lots of reasons to change your mind. Just don't go there. Dump your extra money into a Vanguard index fund, on a regular schedule, and forget about it.

I have a TD Ameritrade account.  I can't recall them ever doing anything to suggest I do additional trades.  Well they do have their Think Or Swim trading platform and magazine but it's just one of their services that I don't use.

Just my experience.

BoostJunky

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Re: Retirement Clueless.. Need Assistance
« Reply #32 on: October 19, 2018, 02:47:13 PM »
Moved the funds into a VTIVX (as I only had $1000 to start), once I reach the $10,000 mark in my account can I transfer this into the VTSAX fund?

MDM

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Re: Retirement Clueless.. Need Assistance
« Reply #33 on: October 19, 2018, 03:02:12 PM »
Moved the funds into a VTIVX (as I only had $1000 to start), once I reach the $10,000 mark in my account can I transfer this into the VTSAX fund?
Have you read through the linked items in https://forum.mrmoneymustache.com/investor-alley/retirement-clueless-need-assistance/msg2173161/#msg2173161?

If so, some homework:
1) What is your desired asset allocation?
2) What is the difference (in dollars) for the expense of holding $10K in VTSMX vs. holding $10K in VTSAX?

John Galt incarnate!

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Re: Retirement Clueless.. Need Assistance
« Reply #34 on: October 20, 2018, 04:29:58 PM »
Don't count out Fidelity either. I have both and Fidelity is now offering some cheaper funds than Vanguard.

Right.

I'm pretty sure that lately Fidelity's FSTVX ER (it fluctuates) has been as low as 1.5 basis points.
« Last Edit: October 20, 2018, 04:33:23 PM by John Galt incarnate! »

lhamo

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Re: Retirement Clueless.. Need Assistance
« Reply #35 on: October 20, 2018, 07:32:20 PM »
In addition to the sources MDM recommended above, you might benefit from reading J. L. Collins' Simple Path to Wealth (available in ebook or print, your library may have it) or the series of blog posts it was based on:

https://jlcollinsnh.com/stock-series/

BoostJunky

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Re: Retirement Clueless.. Need Assistance
« Reply #36 on: October 21, 2018, 11:24:50 AM »
Thanks everyone, I will take a look at those links.