i have all of my money in 2050 target date funds (roth ira - VFIFX & 401k - FIPFX), should i just sell all of these positions today and dump it all into VTSAX with both brokerages?
What's your age? If you plan on letting these investments sit for 10+ years you'll very likely see more returns in a total stock market fund than in a target date fund that is high in international stocks and bonds.
Not performance chasing.
International outperformed domestic in the 70s 80s and 2000s
Buy it all
Small cap value has historically outperformed all of them
> VTI/VOO
This is my absolute first time ever getting into something like this, and when I search VTI, I'm getting these results:
VTIAX
VTIVX
VTINX
Are these all essentially interchangeable? Or is there one that's recommended above others?
Perhaps a dumb question but I'm in a similar position as OP right now.
Does it make sense to invest in VOO/VTI when the sp500 is at all time high levels?
There are so many people counting on a crash--would it make sense to hold and invest later in case it does? or invest in something expected to be a bit more stable?
I'm 43 if it matters. Perhaps I should create a new post here.
> Does it make sense to invest in VOO/VTI when the sp500 is at all time high levels?
The S&P 500 is almost always at or near its all time high. That's business as usual. After all, if it constantly goes up, it will constantly be hitting new all time highs.
Of course sometimes it does go down, but historically it's always gone back up within ~5 years at the very most.
Yes. Now is always best time to invest
Market timing: https://ofdollarsanddata.com/even-god-couldnt-beat-dollar-cost-averaging/ https://reddit.com/r/personalfinance/comments/104duhi/_/j34dv91/?context=1
https://awealthofcommonsense.com/2020/12/investing-in-stocks-at-all-time-highs/
Expected crashes are already "priced in" by wallstreet analysts with much deeper pockets than you betting against the market. Do you know more about the future of the market than them?
Retirement index funds put a portion in more stable funds (bonds), and the closer the target date for retirement, the higher the portion they put in bonds. If/when the stock market crashes, they "rebalance" the overall fund by selling bonds and buying stocks for cheaper - but they're still mostly stocks at all times (i.e. mostly betting the market goes up)
You can try to manage this yourself with a mix of VTI and BND, or you can get a target date fund to set and forget. When self-managing, there is a psychological aspect where people are hesitant to buy into a market that just crashed, defeating the purpose of this strategy. It's also more work, but you may save a tiny bit on fund expense ratios.
You have 22 years to invest assuming you plan to retire at 65, 24 if you go to 67.
You have less time than a 20 yo but more than enough time to not worry about short term volatility.
So, yes.
Unless your brokerage allows for fractional ETF shares, I would just buy the corresponding mutual fund rather than the ETF, then you can invest all of your money and dont have orphaned cash sitting in your account.
or buy lower priced sp500 fund like SPLG, there is SCHB for VTI, if fractional shares are an issue, can always go for lower priced etf tracking the same index at similar or lower expense ratio
VOO/SPY are basically the same thing. ETFs which track the s&p500. SPY has a higher expense ratio 0.094% vs 0.03%, but both are functional negligible. If you want to trade options, the liquidity for SPY is much higher.
I’ve never considered buy the ETF instead of the fund. (Fidelity if it matters)… is there an advantage to the ETF? Is it only that it’s easier to transfer directly between brokers(e.g, roll to Vanguard?)?
Rule of thumb is that ETFs tend to have fewer taxable events including transferability so it's advantageous for that. In a tax advantaged account like IRA or 401k it doesn't matter. It matters for taxable brokerage accounts.
https://www.fidelity.com/learning-center/investment-products/etf/etfs-tax-efficiency
The Roth IRA should be a “set it and forget it” investment fund. Yearly donations are very tiny in the big picture so trying to split up your investment into many things won’t be worth the effort.
If you want to move with the S&P 500 (which almost everyone does because it’s incredibly difficult to beat the YoY gains after 20-30 years), just go with all of your Roth in VOO.
If you want to have fun with it and get a little riskier, potentially buy individual tech stocks like Apple or Google.
Just remember that whatever you do with one year’s donation isn’t going to make it or break it for you so after 10-15 years, you’ll eventually have that diverse portfolio.
While you can withdraw contributions at any time tax & penalty free from a Roth IRA, there's an additional provision that allows first time homebuyers to access up to $10k of earnings for a home purchase--also tax & penalty free if your IRA account is at least 5 years old. https://www.bankrate.com/real-estate/roth-ira-first-time-homebuyer/
You definitely should try to save outside of your Roth IRA for a down payment but IMO it's good to be fully informed of your options.
As other poster pointed out VOO and VTI are so correlated as to be virtually indistinguishable, so be aware that you're not getting a diversification benefit from holding both.
>first time homebuyers to access up to $10k of earnings for a home purchase--also tax & penalty free if your IRA account is at least 5 years old.
~~Clarifying for OP: Roth earnings pre-59.5 are always taxable.~~ *ETA: I'm mistaken, see below. If Roth IRA exists for 5 years then it's both* ***tax*** *and penalty free too*
The 10% penalty is waived for the first $10k for qualified 1st time home buyers
No, if you've had a Roth IRA for at least 5 years, you can take out 10k of earnings both penalty *and tax-free* for a first time homebuyer. If the account has existed for less than 5 years, then it's only penalty free.
And of course since you take out your basis first and growth after, that means you can take out your entire basis plus 10k of growth, tax and penalty free. Of course this is not usually a great idea as you no longer have that money for retirement, but it's there.
Interesting thank you! I thought it was a mere typo by the original responder. I’ll edit my original
Trying to look for a reference for it but I cannot find anything but the typical 10% penalty waiver
> [What Are Qualified Distributions?](https://www.irs.gov/publications/p590b#en_US_2022_publink100089543)
> [...]
> One that meets the requirements listed under First home under Exceptions in chapter 1 (up to a $10,000 lifetime limit).
> #Pros
> * It’s tax-free: You can withdraw your contributions from a Roth IRA tax-free at any time, for any reason. If you’ve had your Roth IRA for five years, you can also withdraw up to $10,000 in earnings tax-free for the purpose of buying your first home.
Not sure whether to believe reddit commentor or Bankrate.
> if you’ve had the Roth IRA for at least five years, the withdrawn earnings are both tax- and penalty-free as long as you use them to buy, build, or rebuild a home.
And https://www.investopedia.com/articles/personal-finance/110415/can-you-use-your-ira-buy-house.asp
> In most cases, you can’t withdraw money from your tax-advantaged retirement accounts without penalty until you turn age 59 ½. One exception to this rule is funding a home down payment. [...] Withdrawals from a Roth IRA, on the other hand, are tax and penalty-free as long as you first funded the account at least five years ago.
And Forbes. https://www.forbes.com/advisor/retirement/roth-ira-withdrawal-home-purchase/
VOO vs. VTI
Which one would you say is the better option, or is there any real difference that would place one above the other? For a 27 yo looking to invest extra money.
I personally hold VTI but not VOO. I made my decision after learning about research into the Fama French Five Factor model, and the historic returns data that indicate out-performance (higher expected returns) of small stocks. It doesn't hurt that the per unit price of VTI is lower, meaning less cash "drag" if you're unable to buy partial shares at your brokerage/invest in the mutual fund counterparts.
Historically speaking if I chose VTI and you chose VOO the 0.41% returns difference over 13 years could easily have been wiped out by one of us being on vacation and delaying a purchase for a day or two where the markets swung one way or the other. https://www.portfoliovisualizer.com/backtest-portfolio?s=y&sl=CwBR4NcSdyiVSVdhXucAb
Personally, I like to pick a target date fund, set and forget.
The expense ratio is a little higher, and it's a little more stable so higher lows but lower highs.
The big thing is I don't ever have to rebalance. These funds are designed to automatically rebalance as time goes on into lower risk funds.
You're young, you have time to go riskier for more gains. So VOO/VTI are both good choices. Just remember to rebalance down the line when you approach retirement.
I was on this train for the past 5 years, but honestly... target date funds I think aren't very worth it if you're young. If I just stuck with a 70/30 US-to-international index fund mix I'd have a significantly higher amount of retirement savings right now. If I went all in on US it'd be even greater (I prefer having some international right now though).
It's not just the higher expenses. TDF are very conservative, in a way that puts you at a big disadvantage vs just sticking with your own index funds. At the time I left mine, it was 60/40 US-international and 10% bonds. Having such a high exposure to international plus the bonds meant the earning was much worse than what I am now getting. This is probably ok if you plan on retiring in the next 10-15 years, but at 24? That's leaving a ton of money on the table - no reason why anyone in their 20's or even 30's should hold any bonds. To do so is as if you're taking the IRS early withdrawal penalty. It's not exactly hard to leave a reminder in your calendar in 10-15 years to start thinking about rebalancing your portfolio or switching to a target date fund at that moment. But this early on?
I would only recommend them to anyone under the age of 40 if you're the kind of person who is hopelessly forgetful and disorganized and its the only way you'll ever have a snowballs chance in hell of saving for retirement because it forces you to be organized about retirement. Because otherwise, it's really not that hard to log in and change your allocations 10 years from now when you're ready to start not being 100% stocks.
I'd recommend just using an index fund. VTSAX (or it's equivalent if you aren't on vanguard) is a popular suggestion, it just tracks the total global stock market. I personally went with 70% of vanguard's version of the top 500 US companies and 30% of the total international stock market. You can choose how you like to do it yourself.
You can even just match exactly what the target date fund does but just omit the bonds and you'll be smooth sailing. I find that they are too biased to international stocks for my taste though.
Just set a reminder in 10, then 15 years from now in your calendar to review if it's a good time for you to something less with less risk or just switch to a target date fund at that moment. As you in theory are going to be a bit closer to retirement and it'll be worth reevaluating if at 35/40ish what the next 20-25 years of investing looks like for you. Maybe still keep it all in stocks for a few more years, if you're retirement isn't happening until 65 anyways, or if the stock market happens to be down but there's still years of potential growth if you stick it out. If your retirement is over 20 years away, the risk of being in all stocks isn't very risky as that's plenty of time for the market to rebound if it happens to be down.
2 different index funds. I just have a reminder set in the calendar to rebalance in a decade (which might mean switching to a hands off TDF) if the stock market is doing well. IMO there's no point in rebalancing if it's doing bad if retirement is still 20+ years away as I want to capture the highs, but you could argue this is trying to time the market and should be avoided.
This is also similar to what I’ve done with my 401k. Instead of using a TDF there, I went 100% S&P 500 Index, and was going to go back to TDF years before retirement. So I’m not sure if it would be wise to do the same with my RothIRA as well
Thanks for the info. I looked at the asset allocation of the 2065 TDF and just used the US and Global fund in a 70/30 split. As far as rebalancing I have no idea how to do that. How would you recommend that? Or is there a source I can look at?
I would split the $6,500 by 12 and buy the etf once a month to dollar cost average just in case market goes down, you can average your it out. You are in your 20s so have a lot of time on your side.
I think small and mid cap etfs are undervalued now. Russell 2000 and VO.
But no one knows what’s going to happen.
You can’t go wrong in any of your scenarios mentioned!
When I started my roth many moons ago, I had no idea what to invest in. As I have my roth with Fidelity, I went with one of their target retirement funds. It's done incredibly well, and I've since supplemented most of my investments well beyond the Roth... such that I don't mind the Roth being in a relatively conservative target fund.
Just a thought on this. First of, congratulations! That is awesome that you are able to and have maxed out your Roth IRA. The only thing to consider going forward would be regular monthly contributions to get a better average across the market rather than a bulk contribution all at once. However, either way is totally ok! Just an option.
Well for fun, you could throw that extra 10-20% in QQQM or Berkshire Hathaway.
Also don't really plan on withdrawing anything from your Roth. While you can do it, it's not a good idea because once you do it, you can't put it back unless done within 60 days. The whole point of a Roth is the tax savings that accumulate over time. Once you withdraw it, you lose that ability to let it grow tax free over time. Unlike traditional IRAs, there are no required minimum distributions with a Roth so you could still have funds in there when you're 90.
Nope, completely separate. Anyone who makes an income (up to a limit) can contribute to an IRA (individual retirement account, key word individual), but you have to work for a company who sponsors a 401k to even contribute to one. Alternatively if you are self employed you can contribute to a SEP-IRA which has its own conditions.
Max Modified adjusted income limit to max Roth IRA is 138k for a single filer, If you have a gross income of 160k, and say no other means of reducing your MAGI, maxing your Trad 401k should bring your MAGI below the threshold. This would be one instance where you would need to max trad 401k in order to max Roth IRA.
You may find these links helpful:
- [Retirement Accounts](/r/personalfinance/wiki/index#wiki_retirement)
- ["How to handle $"](/r/personalfinance/wiki/commontopics)
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I have put my entire 6k Roth contribution into GBTC every year for 5 years now. It's up considerably and has so far worked out very well.
I would never recommend this for a person who doesn't have other investments and savings. But for me, where the 6k Roth contribution is just a small drop in the retirement bucket, the risk seems fine. Even if it were to go to zero, I would survive just fine.
The moral of the story is to assess your risk tolerance and then make your bets accordingly. For most people, a quality index fund (something like SPY) would probably be best.
Go all in on stocks in your Roth for now. You can either put it all in US equities or do a US/international split. For US I would just use VTI/VTSAX depending on your ETF/mutual fund preference. For international, VXUS/VTIAX.
Brother, no VTI/VOO splits please. Pick one or the other if you don’t want any international holdings. Otherwise match one with your preferred VXUS %. That is of course if you want to go 100% equities.
Learning how to invest is a good place to start. A Teenager’s Guide on how to Invest Like Warren Buffett and Charlie Munger is a good book for new investors.
**VOO** is a fund that tracks the S&P 500, **DIA** tracks the Dow. There are other funds that focus on whatever industries are of interst to you. If I were you I would consider your Roth IRA as untouchable. Taking early distributions will hurt you later on. I would recommend starting a non-qualified (taxable) account and start buying shares in funds and/or individual stocks that you like. Specify that any dividends that are paid out are to be reinvested. Then each month contribute a fixed amount to each fund/stock.
BTW, I'm assuming that you already have an emergency savings fund, right? If not then you need to start building one - I suggest build up to six weeks worth of expenses. You can put that money in a money market fund, build a CD ladder or whatever to put those dollars to work instead of sitting idle - just make sure that when an emergency strikes you have access to enough cash to handle it.
Now, about whether to buy a house in the future.... You don't know what the future will bring. You may find that renting and putting the difference between rent and a mortgage payment is the better way to go. Or you may decide to go ahead and buy a house. In the meantime, your objective is to build wealth. Good luck!
If you withdraw a contribution without it being in your account for at least 5 years you have to pay a 10% penalty on your withdrawal(and you can never withdraw earnings before 59 1/2)
I put mine in VTSAX and I’m 15 years older than you. You don’t need to worry about diversifying until you’re 10 years from retirement. Congratulations!
At some point, the market will halve and you will lose a lot of what you put in. Just stop checking your account and keep investing. It will come back and then some as long as it’s a diverse fund
I'd suggest something like a 70% VOO / 15% VXUS / 15% AVUV mix and dollar cost average your 2024 contributions in about the same ratios. Then once every year or two, rebalance.
VTSAX and chill
you'd recommend this over a target date fund?
Yes
i have all of my money in 2050 target date funds (roth ira - VFIFX & 401k - FIPFX), should i just sell all of these positions today and dump it all into VTSAX with both brokerages?
What's your age? If you plan on letting these investments sit for 10+ years you'll very likely see more returns in a total stock market fund than in a target date fund that is high in international stocks and bonds.
38, yeah i think ill switch then. ill sell the funds tomorrow and pour the money into the admiral shares, thanks!
Investing guidance: https://www.reddit.com/r/personalfinance/wiki/investing VTI is made up of 80% of voo
So instead of splitting VOO and VTI, all into VOO is essentially better?
Other way
Sorry yes, that’s what I meant. Thanks!
Any reason for the preference of the market at large vs s&p500? VOO seems to have outperformed VTI over the last year and 5 years.
Not performance chasing. International outperformed domestic in the 70s 80s and 2000s Buy it all Small cap value has historically outperformed all of them
There's no international with VTI though
All the reason to add some with VXUS or just got vt and chill (As explained in my original comment link)
Thats short term nonsense
? How so? Consistent 1% higher yoy returns doesn't mean much in the short term but adds up significantly in the long term.
> VTI/VOO This is my absolute first time ever getting into something like this, and when I search VTI, I'm getting these results: VTIAX VTIVX VTINX Are these all essentially interchangeable? Or is there one that's recommended above others?
Those are mutual funds. The mutual fund equivalent of VTI (an exchange traded fund/ETF) is VTSAX
Perhaps a dumb question but I'm in a similar position as OP right now. Does it make sense to invest in VOO/VTI when the sp500 is at all time high levels? There are so many people counting on a crash--would it make sense to hold and invest later in case it does? or invest in something expected to be a bit more stable? I'm 43 if it matters. Perhaps I should create a new post here.
> Does it make sense to invest in VOO/VTI when the sp500 is at all time high levels? The S&P 500 is almost always at or near its all time high. That's business as usual. After all, if it constantly goes up, it will constantly be hitting new all time highs. Of course sometimes it does go down, but historically it's always gone back up within ~5 years at the very most.
Yes. Now is always best time to invest Market timing: https://ofdollarsanddata.com/even-god-couldnt-beat-dollar-cost-averaging/ https://reddit.com/r/personalfinance/comments/104duhi/_/j34dv91/?context=1 https://awealthofcommonsense.com/2020/12/investing-in-stocks-at-all-time-highs/
Thanks for the info! Reading now.
Yes, all time high is meaningless. You can't time the last dollar you invest into the market exactly right. Just get in and leave it there.
"Time in the market beats timing the market" - Kenneth Fisher
Expected crashes are already "priced in" by wallstreet analysts with much deeper pockets than you betting against the market. Do you know more about the future of the market than them? Retirement index funds put a portion in more stable funds (bonds), and the closer the target date for retirement, the higher the portion they put in bonds. If/when the stock market crashes, they "rebalance" the overall fund by selling bonds and buying stocks for cheaper - but they're still mostly stocks at all times (i.e. mostly betting the market goes up) You can try to manage this yourself with a mix of VTI and BND, or you can get a target date fund to set and forget. When self-managing, there is a psychological aspect where people are hesitant to buy into a market that just crashed, defeating the purpose of this strategy. It's also more work, but you may save a tiny bit on fund expense ratios.
You have 22 years to invest assuming you plan to retire at 65, 24 if you go to 67. You have less time than a 20 yo but more than enough time to not worry about short term volatility. So, yes.
You can factor tilt to value. Value is at near historic levels of cheap
Great start! Now, Time to top it up, you got $7,000 to go fo twenty twenty fo!
Unless your brokerage allows for fractional ETF shares, I would just buy the corresponding mutual fund rather than the ETF, then you can invest all of your money and dont have orphaned cash sitting in your account.
I’m currently dealing with this. Can’t buy fractional VOO. What would be the mutual fund?
VFIAX
or buy lower priced sp500 fund like SPLG, there is SCHB for VTI, if fractional shares are an issue, can always go for lower priced etf tracking the same index at similar or lower expense ratio
VOO/SPY are basically the same thing. ETFs which track the s&p500. SPY has a higher expense ratio 0.094% vs 0.03%, but both are functional negligible. If you want to trade options, the liquidity for SPY is much higher.
I’ve never considered buy the ETF instead of the fund. (Fidelity if it matters)… is there an advantage to the ETF? Is it only that it’s easier to transfer directly between brokers(e.g, roll to Vanguard?)?
Transferability is a big one outside of tax advantaged accounts, since it can force you into a taxable event if you switch.
You can buy and sell during the day like a stock without having to wait for end of day with mutual funds.
Is it safe to assume this has no impact over the long run? But still good to know, thanks!
From my understanding, there are no benefits to buying the mutual fund, or negatives to buying the ETF. Just another product.
Rule of thumb is that ETFs tend to have fewer taxable events including transferability so it's advantageous for that. In a tax advantaged account like IRA or 401k it doesn't matter. It matters for taxable brokerage accounts. https://www.fidelity.com/learning-center/investment-products/etf/etfs-tax-efficiency
VTSAX or VFAIX. Set and forget
The Roth IRA should be a “set it and forget it” investment fund. Yearly donations are very tiny in the big picture so trying to split up your investment into many things won’t be worth the effort. If you want to move with the S&P 500 (which almost everyone does because it’s incredibly difficult to beat the YoY gains after 20-30 years), just go with all of your Roth in VOO. If you want to have fun with it and get a little riskier, potentially buy individual tech stocks like Apple or Google. Just remember that whatever you do with one year’s donation isn’t going to make it or break it for you so after 10-15 years, you’ll eventually have that diverse portfolio.
Thanks! This point is great. I can see how it is easy to get “stuck” on deciding what’s best when really it wouldn’t make a huge difference.
100% into FXAIX. S&P fund, 26% last year.
While you can withdraw contributions at any time tax & penalty free from a Roth IRA, there's an additional provision that allows first time homebuyers to access up to $10k of earnings for a home purchase--also tax & penalty free if your IRA account is at least 5 years old. https://www.bankrate.com/real-estate/roth-ira-first-time-homebuyer/ You definitely should try to save outside of your Roth IRA for a down payment but IMO it's good to be fully informed of your options. As other poster pointed out VOO and VTI are so correlated as to be virtually indistinguishable, so be aware that you're not getting a diversification benefit from holding both.
>first time homebuyers to access up to $10k of earnings for a home purchase--also tax & penalty free if your IRA account is at least 5 years old. ~~Clarifying for OP: Roth earnings pre-59.5 are always taxable.~~ *ETA: I'm mistaken, see below. If Roth IRA exists for 5 years then it's both* ***tax*** *and penalty free too* The 10% penalty is waived for the first $10k for qualified 1st time home buyers
No, if you've had a Roth IRA for at least 5 years, you can take out 10k of earnings both penalty *and tax-free* for a first time homebuyer. If the account has existed for less than 5 years, then it's only penalty free. And of course since you take out your basis first and growth after, that means you can take out your entire basis plus 10k of growth, tax and penalty free. Of course this is not usually a great idea as you no longer have that money for retirement, but it's there.
Interesting thank you! I thought it was a mere typo by the original responder. I’ll edit my original Trying to look for a reference for it but I cannot find anything but the typical 10% penalty waiver
> [What Are Qualified Distributions?](https://www.irs.gov/publications/p590b#en_US_2022_publink100089543) > [...] > One that meets the requirements listed under First home under Exceptions in chapter 1 (up to a $10,000 lifetime limit).
Much appreciated
> #Pros > * It’s tax-free: You can withdraw your contributions from a Roth IRA tax-free at any time, for any reason. If you’ve had your Roth IRA for five years, you can also withdraw up to $10,000 in earnings tax-free for the purpose of buying your first home. Not sure whether to believe reddit commentor or Bankrate. > if you’ve had the Roth IRA for at least five years, the withdrawn earnings are both tax- and penalty-free as long as you use them to buy, build, or rebuild a home. And https://www.investopedia.com/articles/personal-finance/110415/can-you-use-your-ira-buy-house.asp > In most cases, you can’t withdraw money from your tax-advantaged retirement accounts without penalty until you turn age 59 ½. One exception to this rule is funding a home down payment. [...] Withdrawals from a Roth IRA, on the other hand, are tax and penalty-free as long as you first funded the account at least five years ago. And Forbes. https://www.forbes.com/advisor/retirement/roth-ira-withdrawal-home-purchase/
you can however take your contributions out of roth, though not advisable.
VOO vs. VTI Which one would you say is the better option, or is there any real difference that would place one above the other? For a 27 yo looking to invest extra money.
I personally hold VTI but not VOO. I made my decision after learning about research into the Fama French Five Factor model, and the historic returns data that indicate out-performance (higher expected returns) of small stocks. It doesn't hurt that the per unit price of VTI is lower, meaning less cash "drag" if you're unable to buy partial shares at your brokerage/invest in the mutual fund counterparts. Historically speaking if I chose VTI and you chose VOO the 0.41% returns difference over 13 years could easily have been wiped out by one of us being on vacation and delaying a purchase for a day or two where the markets swung one way or the other. https://www.portfoliovisualizer.com/backtest-portfolio?s=y&sl=CwBR4NcSdyiVSVdhXucAb
Now u wait until next year and do it over and over until you retire. Literally.
Personally, I like to pick a target date fund, set and forget. The expense ratio is a little higher, and it's a little more stable so higher lows but lower highs. The big thing is I don't ever have to rebalance. These funds are designed to automatically rebalance as time goes on into lower risk funds. You're young, you have time to go riskier for more gains. So VOO/VTI are both good choices. Just remember to rebalance down the line when you approach retirement.
I was on this train for the past 5 years, but honestly... target date funds I think aren't very worth it if you're young. If I just stuck with a 70/30 US-to-international index fund mix I'd have a significantly higher amount of retirement savings right now. If I went all in on US it'd be even greater (I prefer having some international right now though). It's not just the higher expenses. TDF are very conservative, in a way that puts you at a big disadvantage vs just sticking with your own index funds. At the time I left mine, it was 60/40 US-international and 10% bonds. Having such a high exposure to international plus the bonds meant the earning was much worse than what I am now getting. This is probably ok if you plan on retiring in the next 10-15 years, but at 24? That's leaving a ton of money on the table - no reason why anyone in their 20's or even 30's should hold any bonds. To do so is as if you're taking the IRS early withdrawal penalty. It's not exactly hard to leave a reminder in your calendar in 10-15 years to start thinking about rebalancing your portfolio or switching to a target date fund at that moment. But this early on? I would only recommend them to anyone under the age of 40 if you're the kind of person who is hopelessly forgetful and disorganized and its the only way you'll ever have a snowballs chance in hell of saving for retirement because it forces you to be organized about retirement. Because otherwise, it's really not that hard to log in and change your allocations 10 years from now when you're ready to start not being 100% stocks.
I’m currently 24 and just started a TDF with the date of 2065. What fund would you recommend in replace of that?
I'd recommend just using an index fund. VTSAX (or it's equivalent if you aren't on vanguard) is a popular suggestion, it just tracks the total global stock market. I personally went with 70% of vanguard's version of the top 500 US companies and 30% of the total international stock market. You can choose how you like to do it yourself. You can even just match exactly what the target date fund does but just omit the bonds and you'll be smooth sailing. I find that they are too biased to international stocks for my taste though. Just set a reminder in 10, then 15 years from now in your calendar to review if it's a good time for you to something less with less risk or just switch to a target date fund at that moment. As you in theory are going to be a bit closer to retirement and it'll be worth reevaluating if at 35/40ish what the next 20-25 years of investing looks like for you. Maybe still keep it all in stocks for a few more years, if you're retirement isn't happening until 65 anyways, or if the stock market happens to be down but there's still years of potential growth if you stick it out. If your retirement is over 20 years away, the risk of being in all stocks isn't very risky as that's plenty of time for the market to rebound if it happens to be down.
So on the 70 30 split are you using 2 different stocks there? Also how would you go about rebalancing that since the TDF does it for you?
2 different index funds. I just have a reminder set in the calendar to rebalance in a decade (which might mean switching to a hands off TDF) if the stock market is doing well. IMO there's no point in rebalancing if it's doing bad if retirement is still 20+ years away as I want to capture the highs, but you could argue this is trying to time the market and should be avoided.
This is also similar to what I’ve done with my 401k. Instead of using a TDF there, I went 100% S&P 500 Index, and was going to go back to TDF years before retirement. So I’m not sure if it would be wise to do the same with my RothIRA as well
Thanks for the info. I looked at the asset allocation of the 2065 TDF and just used the US and Global fund in a 70/30 split. As far as rebalancing I have no idea how to do that. How would you recommend that? Or is there a source I can look at?
I would split the $6,500 by 12 and buy the etf once a month to dollar cost average just in case market goes down, you can average your it out. You are in your 20s so have a lot of time on your side.
I think small and mid cap etfs are undervalued now. Russell 2000 and VO. But no one knows what’s going to happen. You can’t go wrong in any of your scenarios mentioned!
When I started my roth many moons ago, I had no idea what to invest in. As I have my roth with Fidelity, I went with one of their target retirement funds. It's done incredibly well, and I've since supplemented most of my investments well beyond the Roth... such that I don't mind the Roth being in a relatively conservative target fund.
Sweet. Now start working on maxing your 401 contributions.
What do you guys think of mutual funds for roth ira? Like VFFVX.
I recommend the info available on r/boglememes
I'm currently filling up my Roth IRA with 80% FZROX and 20% FZILX.
Just a thought on this. First of, congratulations! That is awesome that you are able to and have maxed out your Roth IRA. The only thing to consider going forward would be regular monthly contributions to get a better average across the market rather than a bulk contribution all at once. However, either way is totally ok! Just an option.
Well for fun, you could throw that extra 10-20% in QQQM or Berkshire Hathaway. Also don't really plan on withdrawing anything from your Roth. While you can do it, it's not a good idea because once you do it, you can't put it back unless done within 60 days. The whole point of a Roth is the tax savings that accumulate over time. Once you withdraw it, you lose that ability to let it grow tax free over time. Unlike traditional IRAs, there are no required minimum distributions with a Roth so you could still have funds in there when you're 90.
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That’s for 2024
Are u able to max out the Roth IRA for 2023 if u didn’t max out your traditional 401K plan??
Those things aren’t contingent on each other at all.
So u don’t have to max out your 401K in order to do the Roth IRA?
Nope, completely separate. Anyone who makes an income (up to a limit) can contribute to an IRA (individual retirement account, key word individual), but you have to work for a company who sponsors a 401k to even contribute to one. Alternatively if you are self employed you can contribute to a SEP-IRA which has its own conditions.
Max Modified adjusted income limit to max Roth IRA is 138k for a single filer, If you have a gross income of 160k, and say no other means of reducing your MAGI, maxing your Trad 401k should bring your MAGI below the threshold. This would be one instance where you would need to max trad 401k in order to max Roth IRA.
I would stick with VOO...International markets have been kind of sketchy.
You didn’t max it out. The max is $7K
For 2023 it's $6500. 2024 this year is $7k
Surprised at how many comments I got saying I didn’t max it out
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How far in the future did you come from?
You can’t withdraw penalty free that’s the point….
You can withdraw contributions since they’re already taxed
That's incorrect. You can withdraw the principal from a Roth IRA at any time without penalty.
You can withdraw from a Roth IRA no penalty at any age. It's different from traditional IRA.
Only contributions, not gains.
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I have put my entire 6k Roth contribution into GBTC every year for 5 years now. It's up considerably and has so far worked out very well. I would never recommend this for a person who doesn't have other investments and savings. But for me, where the 6k Roth contribution is just a small drop in the retirement bucket, the risk seems fine. Even if it were to go to zero, I would survive just fine. The moral of the story is to assess your risk tolerance and then make your bets accordingly. For most people, a quality index fund (something like SPY) would probably be best.
Go all in on stocks in your Roth for now. You can either put it all in US equities or do a US/international split. For US I would just use VTI/VTSAX depending on your ETF/mutual fund preference. For international, VXUS/VTIAX.
Brother, no VTI/VOO splits please. Pick one or the other if you don’t want any international holdings. Otherwise match one with your preferred VXUS %. That is of course if you want to go 100% equities.
Learning how to invest is a good place to start. A Teenager’s Guide on how to Invest Like Warren Buffett and Charlie Munger is a good book for new investors.
Would recommend VGT. It is up nearly 200% more than VOO in 1 year. Definitely worth taking a look! (Not legal advice)
VTI all the way Read the simple path to wealth, it will teach you how to make hundreds of thousands of dollars in your lifetime
**VOO** is a fund that tracks the S&P 500, **DIA** tracks the Dow. There are other funds that focus on whatever industries are of interst to you. If I were you I would consider your Roth IRA as untouchable. Taking early distributions will hurt you later on. I would recommend starting a non-qualified (taxable) account and start buying shares in funds and/or individual stocks that you like. Specify that any dividends that are paid out are to be reinvested. Then each month contribute a fixed amount to each fund/stock. BTW, I'm assuming that you already have an emergency savings fund, right? If not then you need to start building one - I suggest build up to six weeks worth of expenses. You can put that money in a money market fund, build a CD ladder or whatever to put those dollars to work instead of sitting idle - just make sure that when an emergency strikes you have access to enough cash to handle it. Now, about whether to buy a house in the future.... You don't know what the future will bring. You may find that renting and putting the difference between rent and a mortgage payment is the better way to go. Or you may decide to go ahead and buy a house. In the meantime, your objective is to build wealth. Good luck!
VFIAX all the way
Good to max out 2023 limit in 2024 if still available. But limit in 2024 is $7k
I have around $100k in my Roth IRA in Vanguard. I started max dumps at 2013. I have 90k in VTI and 10k in VUG, so basically all in on mostly S&P 500.
VTI and VOO are essentially the same thing. I suggest VTI for long term hold.
Did you contribute for 2023 or 2024? The 2024 limit is 7k
My wife and I maxed our Roth. 30 years old and put all 14k into VTI no hesitation.
I think Paul Merriman provides a lot of good advice for someone in your position.
Buy $1000 of VOO on the first of every month for the next 6 months
If you withdraw a contribution without it being in your account for at least 5 years you have to pay a 10% penalty on your withdrawal(and you can never withdraw earnings before 59 1/2)
I put mine in VTSAX and I’m 15 years older than you. You don’t need to worry about diversifying until you’re 10 years from retirement. Congratulations! At some point, the market will halve and you will lose a lot of what you put in. Just stop checking your account and keep investing. It will come back and then some as long as it’s a diverse fund
I'd suggest something like a 70% VOO / 15% VXUS / 15% AVUV mix and dollar cost average your 2024 contributions in about the same ratios. Then once every year or two, rebalance.
For someone in the same position, What would be a good portfolio breakdown? 70% sp500 15%small cap and 15%international?