Vanguard Roth IRA Question

[rennigade]

I've been looking into opening a Roth IRA with Vanguard. I'm not someone who wants to monitore this everyday, I just want to stick money in and let it do it's job. The 2 accounts i've been checking out are:

VTTHX - Vanguard Retirement fund 2035
VTSMX - Vanguard Total Stock Market Index

I've been reading a lot of good things about index funds, so I'm leaning towards VTSMX. Does anyone have any opinions on these 2 funds?

Thanks

[sweeps]

Re: Vanguard Roth IRA Question

The 1st one is better diversified. Total Stock Market gives you diversification across all U.S. stocks. But Target Retirement does that one better by also giving you exposure across the bond market and international/emerging markets stocks.

[HalMd]

Re: Vanguard Roth IRA Question

I have been thinking about buying the second one, and also considering iShares Dow Jones US Total Stock Market (IYY).

EDIT: I thought that one had a higher expense ratio, but I stand corrected. Statement removed here.

[disneysteve]

Re: Vanguard Roth IRA Question

VTTHX - Vanguard Retirement fund 2035
VTSMX - Vanguard Total Stock Market Index

I've been reading a lot of good things about index funds, so I'm leaning towards VTSMX. Does anyone have any opinions on these 2 funds?

The Retirement fund is an index fund also. Actually, it is a basket of index funds. 71.9% of fund assets are held in the Total Stock Market Index, so the bulk of your money would be going to the same place. The difference is the remainder gets divided up between foreign stocks and bonds, but all within index funds. You can see the breakdown here:

https://flagship.vanguard.com/VGApp/hnw/FundsHoldings?FundId=0305&FundIntExt=INT

The Retirement fund will automatically adjust the allocation and become more conservative as you get closer to the target retirement date.

[safari]

Re: Vanguard Roth IRA Question

The Retirement 2035 is managed and has a slightly higher fee (0.21%) than the index fund (0.07%).

I have been thinking about buying the second one, and also considering iShares Dow Jones US Total Stock Market (IYY).

VTSMX has expense ratio of 0.19%. For someone looking to invest in Index funds only, it makes sense to go with Fidelity Spartan Index funds, which have lower expense ratio than Vanguard's index funds, although the minimum intial deposit is $10K, as opposed to $3K at Vanguard. Also keep in mind that Vanguard charges a yearly maintenance fee of $10 for each fund with the balance below $10K.

[sweeps]

Re: Vanguard Roth IRA Question

The Retirement 2035 is managed and has a slightly higher fee (0.21%) than the index fund (0.07%).

I have been thinking about buying the second one, and also considering iShares Dow Jones US Total Stock Market (IYY).

As Safari pointed out, the expense ratio for VTSMX is 0.19% not 0.07%, so the difference in expense ratios is negligible.

Note that these funds do different things. If all your money is in VTSMX, you're putting all your eggs in the U.S. stock basket.

For lump sum investments, ETFs such as IYY is fine. But for dollar-cost averagers, you usually get screwed over by commissions.

Also keep in mind that Vanguard charges a yearly maintenance fee of $10 for each fund with the balance below $10K.

There is no account maintenance fee for VTTHX. However, there is a "low balance fee" of $10 if your balance is below $2,500 in a nonretirement account or $5,000 in an IRA.

[disneysteve]

Re: Vanguard Roth IRA Question

However, there is a "low balance fee" of $10 if your balance is below $2,500 in a nonretirement account or $5,000 in an IRA.

Vanguard does waive the fees when your total Vanguard investments top 50K.

[hrbatyfan]

Re: Vanguard Roth IRA Question

As Safari pointed out, the expense ratio for VTSMX is 0.19% not 0.07%, so the difference in expense ratios is negligible.

Note that these funds do different things. If all your money is in VTSMX, you're putting all your eggs in the U.S. stock basket.

For lump sum investments, ETFs such as IYY is fine. But for dollar-cost averagers, you usually get screwed over by commissions.


There is no account maintenance fee for VTTHX. However, there is a "low balance fee" of $10 if your balance is below $2,500 in a nonretirement account or $5,000 in an IRA.

Is a dollar-cost averager getting screwed over by commissions exclusive to ETFs, or would that also affect investing in a Targeted Retirement Fund or Index Fund in a Vanguard Roth IRA?

[safari]

Re: Vanguard Roth IRA Question

Is a dollar-cost averager getting screwed over by commissions exclusive to ETFs, or would that also affect investing in a Targeted Retirement Fund or Index Fund in a Vanguard Roth IRA?

ETF's are like stocks, you pay comission when you buy and sell. With mutual funds you don't pay comission, but there are management fees.

[disneysteve]

Re: Vanguard Roth IRA Question

With mutual funds you don't pay comission, but there are management fees.

To continue that thought, the management fees are a percentage of assets, so you pay the same percentage whether you invest in a lump sum or small amounts over time. There is no penalty to dollar-cost-averaging.

With the ETF, each time you buy shares (and each time you sell shares), you pay a fee. It isn't practical to do that on a monthly basis.

[hrbatyfan]

Re: Vanguard Roth IRA Question

If I was to start a Roth IRA with Vanguard soon and invest $4,000 at once - should I wait until 2007 to do this?

[sweeps]

Re: Vanguard Roth IRA Question

If I was to start a Roth IRA with Vanguard soon and invest $4,000 at once - should I wait until 2007 to do this?

If you have the money now, you should make a 2006 contribution. If you wait to make a 2007 contribution, you've lost the 2006 opportunity forever.

Having said that, you can wait until April 15, 2007 to make your 2006 contribution. Warning: Market timing ahead: My feeling is that the market is temporarily overbought. I could see an argument for waiting for a drop in the next few months, and then putting in your 2006 contribution.

[hrbatyfan]

Re: Vanguard Roth IRA Question

If you have the money now, you should make a 2006 contribution. If you wait to make a 2007 contribution, you've lost the 2006 opportunity forever.

Having said that, you can wait until April 15, 2007 to make your 2006 contribution. Warning: Market timing ahead: My feeling is that the market is temporarily overbought. I could see an argument for waiting for a drop in the next few months, and then putting in your 2006 contribution.

Gotcha, that makes sense.

So in terms of taxes there really isn't a reason (since Roth is post-tax money I guess). It just depends on whether or not you get it in before April 15th, the last day for something to be in the 2006 tax year.

Thanks for your help.