Roth IRA Fund Advice

If you are happy with this fund, then stick with it. That makes things easy to track. If you want to pick up another fund, I'd suggest looking into some ETFs that track indexes, or stick with the Vanguard index funds. Any of the indexes are OK to follow, but I prefer larger indexes such as the S&P 500 and the Russell. A global index might be OK for a small part of your holdings.

-john-

Good for you! You might also consider making your 2008 contribution now, while the market is down, so you get the most bang for your buck.

That's a very sane choice for a core fund.

That depends. Do you have other investment accounts, like a 401K? What's in them? How far away from retirement are you? What's your risk tolerance? You should look at your overall asset allocation first, and then choose specific funds within that allocation.

Personally, I'm a fan of keeping things simple while you're a newbie investor. Sticking with the VGSTX or a generic balanced or target-retirement fund is usually the best choice if you haven't had time to think about asset allocation, don't have enough money that it makes sense to keep track of 5 or 6 different funds, or just don't want to put in the effort to come up with an asset allocation plan or research lots of funds. That'll protect you from newbie mistakes like putting way too much in risky asset classes like emerging markets or gold, or investing in lots of funds that are too similar to provide any diversification value and just add to your recordkeeping headaches.

-Sandra

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I agree. However, one suggestion: If the reason you're just starting a Roth is that you're relatively new in the job market, that suggests that your time horizon is 30-40 years. In which case, if you have the stomach for it, you might want to consider VHGEX as an alternative (or supplement) to VGSTX.

It is unquestionably more volatile. However, because it is 100% equities, it is quite likely to return substantially more over the long term. But you have to be willing to accept a rough ride from time to time.

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I'd echo John's remark about a foreign fund being the next one to add. In the long run, it will lower volatility and help average return.

I'd ask - do you have a 401(k)? If so, that's part of your asset allocation, and can't be ignored when asking your question about mix and new funds.

Regarding the choice of Roth vs pretax IRA, what is your current tax bracket? You can (currently) retire with $850K and still be in the 10% marginal bracket, so the choice between pre and post tax IRA is not so clear cut. (see

) for a longer explanation of my thoughts on that, if you wish. Joe

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Sorry, I've posted here before, but I don't post on a regular basis so I'll provide a refresher. The Roth is just to supplement me and my wife's company 401ks, which we both contribute up to the company match. The funds in our 401ks are relatively well diversified. I'm

27 years old so don't need immediate access to the investments. My wife and I earn about 100k combined, no kids but probably some day, and in addition to the 401ks and Roth, we have combined savings of 40k in a money market savings account.

Our expenses: Mortgage 84k - 5.5% School Loan 17k - 2.75% School Loan 31k - 3.75% Auto 7k - 5.9%

No credit card or other outstanding debt. I've already contributed $1800 for 2008 so I wanted to get some insight before I invest the remainder. Originally I was going to invest the entire 5k into VGSTX but then thought that perhaps I should start into something else now.

Thanks for your input. While I don't post too often, I lurk a good bit and have always found the discussion insightful.

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My thought is this - the 25% bracket begins at $65,100 this year. STD deduction = $10,900, two exemptions total $7,000. This totals $83,000 (gross). I just suggest that if you are only funding the 401(k) to the matching level, you might benefit by doing the deductible IRAs until you are right at the $65,100 net taxable income level. A couple kids, a bigger house, you may drop down to the 15% bracket, in which case I'd say to fund Roths in that year. And even convert some regular IRA money to bring your income up to the top of the 15% bracket again. Just my opinion, as no one can know the tax structure between now and (your) retirement.

Joe

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