Author Topic: Roth IRA Mutual Fund Advice  (Read 7143 times)

Cwadda

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Roth IRA Mutual Fund Advice
« on: February 20, 2014, 02:13:19 PM »
Hi, I'm 19, and I'm looking to build my portfolio.

I currently have about $6,000 in American Funds Class A shares. This past year it rose 20%, and it's been 14% since I opened my Roth in October 2012. I have a decent amount of cash and I want to max out my Roth IRA for 2013. I have $3000 for this (since I already added $2500 this year). I called my financial adviser for his opinion on what to do next and I mentioned Vanguard (everyone praises this company). He said he uses Vanguard for primarily larger accounts. He recommended for my case to stick with American Funds because there are people actively managing it. He then said I should look into something called New Worlds shares/bonds. "Developing country markets look ugly now but for the amount of time you have, I think they will perform very well in the next 20-30 years." His final advice: $1500 in Class A shares and $1500 in New Worlds.

Would like to get any additional angles here. Thanks.

GlassStash

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Re: Roth IRA Mutual Fund Advice
« Reply #1 on: February 20, 2014, 02:29:39 PM »
Do yourself a favor and take the time to read through http://jlcollinsnh.com/stock-series/.

Vanguard is not just for "primarily larger accounts" and 80% of passive index funds outperform actively managed mutual funds. This means that only 1 in 5 mutual funds outperform index funds.

Again, educate yourself on index investing and then tell your financial advisor to take a hike.

Frankies Girl

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Re: Roth IRA Mutual Fund Advice
« Reply #2 on: February 20, 2014, 02:32:41 PM »
He's a very good adviser, basically. But not for you, or anyone that wants to invest without the company eating up their profits. He's going to try to sell you on things that make money for him and his firm - that's what most advisers do.

That's a front load fund he's pushing, which means you'd be paying UP FRONT to even get into it. And then it has an expense ratio of right around 1%, (ouch!) and it's not a great return on investment.

What you currently have was also front-loaded, and if it only did 20-25% in 2013, then that isn't super. The overall market was up over 30%, so it lagged quite a bit, and I imagine some of your returns were eaten up by expenses as well. It's not terrible, (terrible would be not investing at all or throwing money away on stupid things) but you could do so much better.

You should look into opening a new or moving your existing account to Vanguard or Fidelity, sell off that crap and get into index funds (or at your age, just the one - total stock market index). I prefer Fidelity, because they have some awesome index funds (Spartan series) and great deals on ETF trading, and they have a superior website and customer service, but you won't be wrong choosing Vanguard either. If you do go with Fidelity, make sure you're watching the expense ratios and steering clear of the professionally managed funds. They'll still try to upsell you if you don't know what you're doing, so do some reading and educate yourself on how the stock market works.

Recommended reading:
http://www.mrmoneymustache.com/2011/05/18/how-to-make-money-in-the-stock-market/

http://jlcollinsnh.com/stock-series/
(this is the best series!)

http://www.bogleheads.org/wiki/Main_Page
(named for the founder of Vanguard, John Bogle, so they'll lean more towards investing with Vanguard - but great explanation of passive investing and simplification)


You're in a great place to really maximize your savings and investments at your age - so smart that you're getting in on it while you're so young. VERY smart!
« Last Edit: February 20, 2014, 02:35:33 PM by Frankies Girl »

HAULIN3

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Re: Roth IRA Mutual Fund Advice
« Reply #3 on: February 20, 2014, 03:00:26 PM »
I opened a mutual funds account for all four of my grand-daughters... the same fund she is talking about.. Did I make a mistake? Darn!

iamlindoro

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Re: Roth IRA Mutual Fund Advice
« Reply #4 on: February 20, 2014, 03:03:33 PM »
In addition to Frankie's Girl's excellent advice above, this is very interesting watching:

http://www.pbs.org/wgbh/pages/frontline/retirement-gamble/

This episode of Frontline delves deep into active management versus passive management, the long term performance of such funds, and interviews both active managers and John Bogle.  See who seems more credible to you.  It should be a hint that the active managers cannot give a single credible reason to use an actively managed fund when confronted with the fact that they tend to underperform index funds.

Cwadda

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Re: Roth IRA Mutual Fund Advice
« Reply #5 on: February 20, 2014, 03:16:12 PM »
Thanks everyone for all the information. I'll read up on this stuff and then post again later. Any other advice is welcomed.

I'm leaning toward transferring my account to Vanguard right now. 

Cwadda

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Re: Roth IRA Mutual Fund Advice
« Reply #6 on: February 21, 2014, 09:43:06 PM »
Bump.

I talked to my adviser and asked what to do with a 3k budget. He said put half into what I currently have and half into a developing countries "New World" fund. I told my adviser I'm going to wait a while before doing more. But I'd like to max out the Roth before April 15th.

Official stats: I paid 5.77% up front for shares buy-in. If I transfer my money I'm assuming I'll get hit again. The annual fees were $30 since I opened it in October 2012.  So that's around 1%

If I transfer my whole account to Vanguard I don't want to lose all the ground made.

Frankies Girl

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Re: Roth IRA Mutual Fund Advice
« Reply #7 on: February 21, 2014, 10:26:15 PM »
Bump.

I talked to my adviser and asked what to do with a 3k budget. He said put half into what I currently have and half into a developing countries "New World" fund. I told my adviser I'm going to wait a while before doing more. But I'd like to max out the Roth before April 15th.

Official stats: I paid 5.77% up front for shares buy-in. If I transfer my money I'm assuming I'll get hit again. The annual fees were $30 since I opened it in October 2012.  So that's around 1%

If I transfer my whole account to Vanguard I don't want to lose all the ground made.

You're going to stay with a fund that doesn't perform well, charges you higher fees and an adviser that gives you crap advice because you've already lost money in fees and it might cost a little to get your account moved? You need to consider the idea of sunk cost. Find out how much it will cost you to move your account and seriously weigh the advantages versus staying with a sub-par setup.

We've all been there - I started out with a money market account in front loaded fees with my very first 401k... but as soon as I figured out that it wasn't a good deal, I got out. That money in fees is already gone, and as long as you made some profit - consider it a cheap life lesson and move on to greener pastures.

Oh, and do read those links. If I knew all of that stuff when I was your age...

Cwadda

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Re: Roth IRA Mutual Fund Advice
« Reply #8 on: February 21, 2014, 10:43:44 PM »
Holy crap!!! Oh my goodness, what the heck? The reality has set in. All I can say is wow. After watching that video I seriously want to become a fiduciary. There is so much wrong and unjust. I don't care if John Bogle is biased toward his own company - he is the most logical, intelligent sounding, genius. His claims are backed by scientific reasoning and evidence. These mutual funds DO NOT have answers. They are full of it.

I am figuring out all the numbers for an account transfer ASAP.

Cwadda

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Re: Roth IRA Mutual Fund Advice
« Reply #9 on: February 21, 2014, 11:16:11 PM »
I checked out some other threads on here with similar cases. It sounds like because I paid the front-load fee, I'm not going to get hit hard if I want to transfer.

I'm really inexperienced with this though, and it's pretty nerve-racking. How do I even go about transferring my Roth IRA? If I use my adviser will his company charge a fee? How do I wire money from AF to Vanguard safely?

I feel like I won't have a piece of mind until this is settled.

Cwadda

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Re: Roth IRA Mutual Fund Advice
« Reply #10 on: February 22, 2014, 07:27:29 AM »
Does anyone have any recommendations for any specific Vanguard funds for my case? There are so many and I'm not sure where to start.

GlassStash

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Re: Roth IRA Mutual Fund Advice
« Reply #11 on: February 22, 2014, 08:19:29 AM »
Does anyone have any recommendations for any specific Vanguard funds for my case? There are so many and I'm not sure where to start.

VTSAX - Total Stock Market Index
VBTLX - Total Bond Market Index
VTIAX - Total Int'l Market
VGSLX - REIT Index

Depending on your chosen asset allocation, I would start with the above funds. They are "admiral" shares (requiring a $10k minimum) but the "investor" shares (requiring $3k) can also be easily found. These index funds should cover your basic index and diversification needs.

Cwadda

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Re: Roth IRA Mutual Fund Advice
« Reply #12 on: February 22, 2014, 08:56:49 AM »
If I started on the investor shares would it be costly to transfer them to the bigger ones later this year?

iamlindoro

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Re: Roth IRA Mutual Fund Advice
« Reply #13 on: February 22, 2014, 09:02:34 AM »
If I started on the investor shares would it be costly to transfer them to the bigger ones later this year?

At Vanguard, switching from investor to Admiral costs nothing.  In fact, it's done for you automatically if you hit the threshold and leave them alone for too long.

At age 19, I would be heavily weighted towards stocks.  As in, I would be 100% VTSAX.  See the JCollins stock series above for more info.

GlassStash

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Re: Roth IRA Mutual Fund Advice
« Reply #14 on: February 22, 2014, 09:23:16 AM »
If I started on the investor shares would it be costly to transfer them to the bigger ones later this year?

At Vanguard, switching from investor to Admiral costs nothing.  In fact, it's done for you automatically if you hit the threshold and leave them alone for too long.

At age 19, I would be heavily weighted towards stocks.  As in, I would be 100% VTSAX.  See the JCollins stock series above for more info.

I would have some bonds for rebalancing, but either way is reasonable.

Cwadda

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Re: Roth IRA Mutual Fund Advice
« Reply #15 on: February 22, 2014, 10:18:33 AM »
Yeah I've spent a considerable amount of time reading that blog. I think I can get 10k by later this year. I have 5800 right now, with 3000 more coming. So I only need 1200 more, which I can get by the end of this semester.

Will I get charged hard for transferring my portfolio to Vanguard?

Cwadda

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Re: Roth IRA Mutual Fund Advice
« Reply #16 on: February 22, 2014, 10:19:13 AM »
Thanks to everyone so far, I feel enlightened, in sort of a twisted way.

markstache

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Re: Roth IRA Mutual Fund Advice
« Reply #17 on: February 22, 2014, 10:23:09 AM »
I'm really inexperienced with this though, and it's pretty nerve-racking. How do I even go about transferring my Roth IRA? If I use my adviser will his company charge a fee? How do I wire money from AF to Vanguard safely?

Call Vanguard's concierge service. They have tons of experience in transferring accounts, and they'll make it easy as pie. You'll probably need to get a form from your current custodian, sign and notarize, and return to your original custodian to release funds to Vanguard. They will send the check directly to Vanguard. I did this a few summers ago, and was a little nervous like you. Talking to someone on the phone who had done this hundreds if not thousands of times really steadied my nerves.

Cwadda

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Re: Roth IRA Mutual Fund Advice
« Reply #18 on: February 22, 2014, 10:56:23 AM »
Is my custodian my financial advisor or American Funds?

It my be easier if I just opened a Vanguard portfolio with the 3k and transferred the rest into it later.
« Last Edit: February 22, 2014, 11:04:29 AM by Cwadda »

Cwadda

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Re: Roth IRA Mutual Fund Advice
« Reply #19 on: February 22, 2014, 11:31:46 AM »
Does anyone have any recommendations for any specific Vanguard funds for my case? There are so many and I'm not sure where to start.

VTSAX - Total Stock Market Index
VBTLX - Total Bond Market Index
VTIAX - Total Int'l Market
VGSLX - REIT Index

Depending on your chosen asset allocation, I would start with the above funds. They are "admiral" shares (requiring a $10k minimum) but the "investor" shares (requiring $3k) can also be easily found. These index funds should cover your basic index and diversification needs.

The JCollins says 50% total market stocks, 25% real estate, and 25% deflation hedge bonds. In my situation, what is a good allocation for a portfolio? Fewer bonds because I have more time?

Frankies Girl

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Re: Roth IRA Mutual Fund Advice
« Reply #20 on: February 22, 2014, 12:01:27 PM »
Does anyone have any recommendations for any specific Vanguard funds for my case? There are so many and I'm not sure where to start.

VTSAX - Total Stock Market Index
VBTLX - Total Bond Market Index
VTIAX - Total Int'l Market
VGSLX - REIT Index

Depending on your chosen asset allocation, I would start with the above funds. They are "admiral" shares (requiring a $10k minimum) but the "investor" shares (requiring $3k) can also be easily found. These index funds should cover your basic index and diversification needs.

The JCollins says 50% total market stocks, 25% real estate, and 25% deflation hedge bonds. In my situation, what is a good allocation for a portfolio? Fewer bonds because I have more time?

That is Jim Collins' personal portfolio for someone in early retirement; you're young and have many more years ahead of you, so you should be able to weather more risk. I believe that MMM is pretty much 100% in VTSAX (at least his investing post I linked above recommends it) and he's almost twice your age. It is a much more volatile ride, but can be worth it if you're comfortable with the short term risks to achieve long term profits.

The investor level of that same fund is VTSMX ($3000 minimum investment).

Try reading what he has advised his daughter (who I believe is in her early 20s now, but was 19 when he was writing this). He believed for someone that age, going 100% into VTSAX was the optimal deal:

Quote
Owning 100% stocks like this is considered “very aggressive.”  It is, but you have decades ahead.  Market ups and downs don’t matter as long as you avoid panic and stay the course.  Perhaps 40+ years from now you might want to add a Bond Index Fund to smooth out the ups and downs.  Worry about that 40 years from now.

http://jlcollinsnh.com/2011/06/08/how-i-failed-my-daughter-and-a-simple-path-to-wealth/

But do consider and explore your own comfort levels as well and keep reading and educating yourself. Don't rely on someone else (like your current adviser or random strangers on the internet) too heavily for advice without understanding the "why" and "how does this actually work" and the biggie "is this in MY best interest?" Always think about what is being said and do some further research so you understand the why and you'll also develop a better understanding of how some people out there are not looking out for your best interests.

GlassStash

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Re: Roth IRA Mutual Fund Advice
« Reply #21 on: February 22, 2014, 12:11:42 PM »
Does anyone have any recommendations for any specific Vanguard funds for my case? There are so many and I'm not sure where to start.

VTSAX - Total Stock Market Index
VBTLX - Total Bond Market Index
VTIAX - Total Int'l Market
VGSLX - REIT Index

Depending on your chosen asset allocation, I would start with the above funds. They are "admiral" shares (requiring a $10k minimum) but the "investor" shares (requiring $3k) can also be easily found. These index funds should cover your basic index and diversification needs.

The JCollins says 50% total market stocks, 25% real estate, and 25% deflation hedge bonds. In my situation, what is a good allocation for a portfolio? Fewer bonds because I have more time?

But do consider and explore your own comfort levels as well and keep reading and educating yourself. Don't rely on someone else (like your current adviser or random strangers on the internet) too heavily for advice without understanding the "why" and "how does this actually work" and the biggie "is this in MY best interest?" Always think about what is being said and do some further research so you understand the why and you'll also develop a better understanding of how some people out there are not looking out for your best interests.

I would recommend renting a book from your local library, "The Bogleheads' Guide to Investing." It will answer all the questions you have here and provide you with invaluable education. This is required reading for young investors, imo.

Cwadda

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Re: Roth IRA Mutual Fund Advice
« Reply #22 on: February 22, 2014, 12:53:48 PM »
Local library doesn't have that exact book, but my university might.

It has these by Bogle:
Common sense on mutual funds : new imperatives for the intelligent investor
Bogle on mutual funds : new perspectives for the intelligent investor


Thank you so much everyone here! I'm going to do my work, read books, and become more financially educated. I did a quick compound interest calculator using $8800 as the principal, adding $150 per month, and using 7% growth rate for 50 years. Then I did a run for 6% (assuming at least a 1% fee)

7% Future Value   $990,973.89
6% Future Value   $684,701.99

Well, there it is. $306,000 lost to fees. In other words, I'm calling Vanguard today. ^.^

Cwadda

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Re: Roth IRA Mutual Fund Advice
« Reply #23 on: February 24, 2014, 04:56:55 PM »
Just initiated a transfer of $3000 from my bank account to opening a Vanguard account with Total Stock Market Index Investor Shares. BAM!

GlassStash

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Re: Roth IRA Mutual Fund Advice
« Reply #24 on: February 24, 2014, 05:31:54 PM »
Just initiated a transfer of $3000 from my bank account to opening a Vanguard account with Total Stock Market Index Investor Shares. BAM!

Kudos. With steady contributions and a frugal lifestyle you'll be FIRE in no time.