Investing Newbie

[artimeg]

Hello everyone,

I have been lurking here for awhile now, but finally joined up recently.

I have been trying to do some research into IRA's and possibly some other investments (no idea where to start with that one).

Currently I am 25 and make under 25k a year, but my only expenses are my car $275 a month and 100 a month for the insurance. I still live at home with parents so that I can save as much as I can.

I currently have about 1700 in:
Thrivent Moderately Aggres. Allocation A ( MUTF:TMAAX )
but I am sure I can find something better without the fees.

Another 9k is just in an ING Savings account and about 4k more in just a standard checking account with no interest.

I have no 401k option through work.

--

What I am looking for is some advice on where to place my money. I would like to put a majority into a long term investment and some into short terms. I am open to pretty much any suggestions.

Probably can put atleast 200 or more a month away to an IRA.

I am thinking of opening a Roth IRA and maxing it out. My thinking was just going with a Target date fund, something along the lines of 2040-2050.

I am having a hard time deciding who to go with, Vanguard vs T Rowe Price vs Fidelity and have no fees.

I would like to reap the benefits of tax deduction on a Traditional IRA, but I think in the long run things will work out better for me by going with a Roth.

Thank you very much for any advice you have for me!

[jIM_Ohio]

A wise member here once told me long range tax planning makes little sense because tax code changes often. A Roth IRA is long term tax planning.

Use the Roth if your 25k income falls into 15% tax bracket. The moment you find yourself in 25% tax bracket take the deductable IRA.

I believe cutoff for being single is $33050 ($33051 dollar taxed at 25%).

T Rowe Target date funds tend to be more aggressive allocation wise than their counter parts.

[okaythen]

who is that wise member

[disneysteve]

One suggestion: Your monthly bills are $375 plus whatever spending money you need. Why keep $4,000 in a non-interest-bearing checking account? I'd move all but maybe $1,000 (or even less) to the ING account so at least you are earning interest on that money.

[jIM_Ohio]

who is that wise member

Check my blog and look at the posts on tax planning.

[artimeg]

One suggestion: Your monthly bills are $375 plus whatever spending money you need. Why keep $4,000 in a non-interest-bearing checking account? I'd move all but maybe $1,000 (or even less) to the ING account so at least you are earning interest on that money.

That is a good point. I usually do transfer most of it over from my checking acct. (keep around 1500 on avg), but since I am gonna be opening a new IRA, probably looking to put atleast 3k in it to start, I have delayed in moving funds over to ING.

I have been trying to read up on the T Rowe Price, Vanguard and Fidelity sites.

Here are some of the funds that I have looked up. Since I am very new to investing I thought that my best course of action to begin with is a Target Date Fund. I know that none of these are doing very well over the last year or 2, but I understand that these are for long term and it could be a lot of ups and down over time. On the plus side if I can buy when prices are low right now, even better

Does anyone have any opinions on these funds?

T. Rowe Price Retirement 2045 (TRRKX)
Vanguard Target Retirement 2050 (VFIFX)
Fidelity Freedom 2050 (FFFHX)

I should be able to handle the minimums on any of these. I believe TRP and Fidelity are no fees and Vanguard is no fee as well if you sign up for paperless.

Thanks again for taking the time to listen to my rambling and any advice you have.

[disneysteve]

Does anyone have any opinions on these funds?

T. Rowe Price Retirement 2045 (TRRKX)
Vanguard Target Retirement 2050 (VFIFX)
Fidelity Freedom 2050 (FFFHX)

I should be able to handle the minimums on any of these. I believe TRP and Fidelity are no fees and Vanguard is no fee as well if you sign up for paperless.

I think debating the nuances between those 3 funds is relatively meaningless. They are all great choices. The main difference is probably their specific asset allocation and how and when they adjust their allocations, since they each use a little different formula. But I don't think you could go wrong with any of them.

[jIM_Ohio]

I think debating the nuances between those 3 funds is relatively meaningless. They are all great choices. The main difference is probably their specific asset allocation and how and when they adjust their allocations, since they each use a little different formula. But I don't think you could go wrong with any of them.

Agreed

[Tilt]

I use Vanguard and am happy with them. You are correct, if you sign up with Vanguard paperless you have no annual fees, but one thing you may not be aware of is what is called an Expense Ratio. This is the percent of your money the fund takes for running the fund (pays the workers and the buy and sell fees, things like that). All mutual funds have these, just type their ticker into google finance or yahoo finance and you will see it listed. Vanguard has very low expense ratios, which is why they are very popular.

The choices you gave have the following expense ratios.

TRRKX .74%
VFIFX .21%
FFFHX .80%

What this means to you is that if Vangaurd returns 7% a year, the others have to return 7.5% a year to make up for their higher ERs. Try to control what you can control, in this case keeping your ERs low. All 3 of those choices should have similar returns over the long term.

If you want to get a little more agressive, all you need to do is just pick 5 years past your actual retirement date, which will put you more in stocks and less in bonds (more risk).

[disneysteve]

The choices you gave have the following expense ratios.

TRRKX .74%
VFIFX .21%
FFFHX .80%

What this means to you is that if Vangaurd returns 7% a year, the others have to return 7.5% a year to make up for their higher ERs. Try to control what you can control, in this case keeping your ERs low. All 3 of those choices should have similar returns over the long term.

If you want to get a little more agressive, all you need to do is just pick 5 years past your actual retirement date, which will put you more in stocks and less in bonds (more risk).

Very good point about ERs, which is why Vanguard is so popular. Why give up 0.5%/year that you don't have to? I'm with Vanguard, too, and that is definitely part of the reason.

The aggressiveness issue isn't quite so clear cut. Right now, the allocations of Vanguard 2045 and 2050 are identical, exactly the same. So the 2050 fund isn't more aggressive at the moment. However, what differentiates them, is what happens in the future. 2045 should become more conservative sooner than 2050. That's when their allocations will diverge.

[atomicrc11]

Personally I have my money split between Vanguard and Fidelity. Both are great companies. I know people always say go with the lower expense ratio, but Fidelity has some great funds if you ever want to get more specific in your allocation or if you want to hold stocks in your IRA. Fidelity is where I have my brokerage and I hold Fidelity Balanced Fund, which versus Vanguard STAR has performed much better despite an expense ratio that is double. So don't worry all that much about the expense ratio, but definitely take it into consideration.

[artimeg]

Awesome info about the ER's! That is one area that I noticed, but wasn't exactly sure what it meant, thanks for clarifying.

I think I will go with the Vanguard 2050 fund for now and look into some of the other companies when I am finally ready or branch out of the target date funds and get a little more customization.

Thanks again for all the advice, I am definitely gonna have to stick around and see if I can keep soaking up all the info I can.