Roth IRA for College Student - Vanguard STAR vs Vanguard Target Funds

[SavingBucks]

DD (freshman in college) can open a Roth IRA for 2016 but has less than the $3000 required for most Vanguard Funds. The exceptions are Vanguard STAR and the Vanguard Target Funds. Any opinions on either would be appreciated.

[disneysteve]

DD (freshman in college) can open a Roth IRA for 2016 but has less than the $3000 required for most Vanguard Funds. The exceptions are Vanguard STAR and the Vanguard Target Funds. Any opinions on either would be appreciated.

I think those are both good choices. When my daughter opened her Roth a few years ago, we went with the Target fund but STAR is an equally good choice. I just figured with the Target fund she was set for the long term even when her balance grew.

And congrats to her (and you) for her taking that step at her age. Getting on that path early makes such a huge difference.

[Jluke]

2nd disneysteve's suggestion that the Target fund would be a good choice.

If you were leaning towards something like Vanguard's Total Stock Market mutual fund, you could always start with the ETF version, VTI. I believe it has the same low Expense Ratio as the Admiral shares...

[kork13]

If your daughter has $1,000 on hand that she can put into the Roth IRA, I'd personally recommend a target date fund. It's simple, understandable, and an all-around GOOD (if not the "best") option for someone just starting out & who is just learning.

If she doesn't have that kind of cash on-hand, I'd suggest 2 options:
a) You give her the money needed to get started. If she's interested and wanting to do this, I can see no better way for you to invest $1k in her future. Alternatively, loan it to her.
b) Instead of a mutual fund, point her to ETFs. The minimum purchases for those are 1 share, and Vanguard doesn't charge any transaction fees on its own ETFs. As an added bonus, the ETFs charge lower expenses. She could buy:
- VTI (Total Stock Market index ETF), currently $121.32/share
- BND (Total Bond Market index ETF), currently $81.09/share
- VXUS (Total Int'l Stock Market index ETF), currently $49.68/share
This would allow her to tailor not only her asset allocation from the start, but more importantly, it'd let her get started with as little as $122. More desirably, she could start out with 2sh VTI ($243), 1sh BND ($81), 2sh VXUS ($100). That'd require only $424 to get started with a low-cost portfolio with an 80/20 AA, with a 70/30 mix of US/int'l stocks.

[Petunia 100]

Schwab launched their own Target Retirement Index Funds last year. Like Vanguard, they use broad market indexes with low costs in their TR funds. The expense ratio of the Schwab TR funds are actually a tiny bit less than Vanguard's. And, you can start with $100.

They're a fine choice if 1k is a deterrent.

http://www.schwab.com/public/schwab/investing/accounts_products/investment/mutual_funds/mutual_fund_portfolio/target_funds