Roth IRA suggestion please

[PauletteGoddard]

Someone I'm very close to (who isn't me, I already have a Roth IRA) is expecting to receive close to $2000. He's disclosed he wants to put the money in his Roth IRA, which he opened over two years ago but hasn't contributed to since.

He's intimated he'll be asking me for advice on how to invest it. I want to tell him to keep it as stupid as possible and just plunk $3000 in Vanguard's Total Stock Market Index.

This is not a person who keeps up with investing trends -- he's mr. invest it and forget it, so a diversified index fund investment seems appropriate. However, I'm not Ms. CFP, so I'm wondering: is there anything lazier and just as effective as VTSMX as a first investment for my Slacker Boy's Roth IRA?

PG

[Ima saver]

I think your advice is very good!!

[sweeps]

If you want lazy but even more diversified, check out one of the target retirement funds. For example, VTTHX. This would give your friend exposure to bonds and foreign stocks in addition to U.S. stocks.

[disneysteve]

I agree with Sweeps. The targeted retirement funds are a good no-brainer way to go. But it does depend on the person's age and what other investments (if any) he already has. And one thing to consider is how aggressive he wants to be. There is no law saying you have to pick an accurate retirement age. If you would likely retire in 2035, you could pick the 2045 fund and get a more aggressive (i.e. more stock) portfolio.

[lrjohnson]

I just opened a ROTH IRA. At $3K, will add $1k next month. That sounds so simple, and it kinda was (online, Vanguard) but whew, when it looks like a hurdle, it feels spectacular to get it done.

[sweeps]

Way to go, LRJ.

[Ima saver]

Irjohnson, you have been talking about this for a while. Good for you!! I know I reseearched my first mutual fund for about 6 months before I opened it. Which fund did you chose? Congratulations!!

[lrjohnson]

Just set up my Yodlee too...I'm smoking now, out of control!

[Ima saver]

Don't know what a yodlee is, you are ahead of me!![Automated by GetSmile]

[Diolla]

Originally Posted by disneysteve

I agree with Sweeps. The targeted retirement funds are a good no-brainer way to go. But it does depend on the person's age and what other investments (if any) he already has. And one thing to consider is how aggressive he wants to be. There is no law saying you have to pick an accurate retirement age. If you would likely retire in 2035, you could pick the 2045 fund and get a more aggressive (i.e. more stock) portfolio.

A recent article I read said the target retirement funds aren't doing a good job of living up to their promise. Even the ones that are suppose to be agressive are playing it too safe. If I had to choose I would go with the total stock or an index fund. Prolly do just as good if not better in the long run.

[sweeps]

Did you read that article on Yahoo? It was referring specifically to the conservative retirement funds. The 2035 fund, for example, is 90% invested in stocks -- I wouldn't call that conservative.

[Diolla]

90% stock sounds agressive until you look at what kind of stocks. Little or no small cap or foreign stocks. I will look and see if I can find the article, it wasn't Yahoo it was from a newsletter I get and I usually delete it (hence the link) once I read it.

[Diolla]

http://www.marketwatch.com/News/Stor...eid=mktw&dist=

Here it is,

[rerod]

Interesting.
Im surprised no one commented on this article. And now I dont feel as indecisive knowing others have taken a long time making this decision.

If I pick the 2045 with vanguard. Can I easily reallocate to another fund after Im more educated? Im not the mr. invest it and forget it type. I feel guilty I havent educated myself better years ago. But am determined to.

[disneysteve]

Originally Posted by rerod

If I pick the 2045 with vanguard. Can I easily reallocate to another fund after Im more educated?

It is very simple to move money amongst different funds with Vanguard. You can do it all online when you access your account.

that is interesting

I never had intended to stay with my target retirement fund any longer than necessary. It was a great way to get day 1 diversification in my Roth. After a few years have passed and there's enough money in my account, I plan to "take the reins" myself.

Time will tell how boneheaded a decision that turns out to be.

[kv968]

Originally Posted by rexdart

that is interesting

I never had intended to stay with my target retirement fund any longer than necessary. It was a great way to get day 1 diversification in my Roth. After a few years have passed and there's enough money in my account, I plan to "take the reins" myself.

Time will tell how boneheaded a decision that turns out to be.

I'm doing the same thing. Once enough gets accumulated to diversify it properly I'm planning on splitting up my target retirement fund too. And like rexdart said, "Time will tell how boneheaded a decision that turns out to be."

I agree with the article, target funds don't represent the very best allocation you could get in a portfolio. However for people who don't understand investing nor have the time or the inclination to learn about it, I think it's a great place for them to invest. I've seen too many people who just "set-it-and-forget-it" and the fund or funds that they do it with aren't necessarily meant to be held that way for a long time without an occasional tweek.

[disneysteve]

Originally Posted by kv968

target funds don't represent the very best allocation you could get in a portfolio.

I also think a lot of people are defeating the purpose of the target funds by investing, for example, their Roth money in a target fund, but then investing their 401k money in several other funds and some taxable investments in still other funds. They lose sight of the overall allocation of their portfolio.

[rerod]

At the moment Im trying to understand why I didnt keep track of my CREF growth allocation. Im the bone head now. What a dog.

T rowe has a personal advisor for a one time fee of $250. Anyone have experiance with that?

[kv968]

Originally Posted by disneysteve

I also think a lot of people are defeating the purpose of the target funds by investing, for example, their Roth money in a target fund, but then investing their 401k money in several other funds and some taxable investments in still other funds. They lose sight of the overall allocation of their portfolio.

I agree, but sometimes there's not much choice in the matter. In an IRA you should be able to choose pretty much whatever you want but with a 401K you're options are limited (sometimes TOO limited) so you have to make due with what you've got. Although you're also right in that people sometimes micromanage their accounts when they allocate funds. They may look at each account individually (ie. 401K, IRA, etc...) and feel they're balanced but fail to look at the overall, combined picture and see that their allocation may be way off of what they think it is.