Bandit2 said:DBFinley said:Hi I'm looking to start a Roth IRA, and have basically narrowed my options down to Vanguard and Fidelity, since these seem to be the two front runners. I'm relatively new to this finance game and my first question was which of the two would be the better choice?

They are both very good so you shouldn't stress out. I like Vanguard because they offer great funds, have really low expenses, and Vanguard is owned by its investors. I.e., there is no conflict of interest between the investors and the owners of the company.

My second question was after I pick from these 2, how should I allocate my funds?

You can only contribute $4,000 so in my opinion you can only reasonably purchase a single fund. With Vanguard I think it would only be possibly for you to purchase two funds, since with the exception of STAR ($1000 minimum) they all have $3,000 minimum initial purchases.

You should be looking at a very high stock allocation, like 90%.

Is buy and hold still frowned upon for the IRA/401k market?

What do you mean "still"? Buy and hold is the way to go.

Also would there be any merit to putting money in a Vanguard/ Fidelity target retirement fund instead, and having them do the work, or is this a sucker's game?

It is not a sucker's game and it is a very fine idea. I don't know about Fidelity, but Vanguard Target Retirement funds are simply a way to invest in several of their index funds at once. It will get you a more diverse allocation ($4,000 is not going to let you diversify with individual funds), re-balance automatically, and avoid fees. Target retirement funds at Vanguard have much lower balance requirements than index funds.

Consider the alternative, which is having several Vanguard index funds, each charging you a quarterly service fee for balances under $10,000. I don't think you should pay those fees, you should invest in those same indexes via a Target Retirement Fund instead. In the future, when you have a high enough balance to reasonably diversify with individual funds, you can transfer into new funds.

What about doing something simple like:

80% total stock market fund
20% total international market fund

I read that historically, such a plan would beat out most actively-managed funds over a long period of time.

How can one avoid the minimum balance fee for starting a new Roth IRA with Vanguard? The min balance required to avoid fees is $10,000 per fund, so scheduling the max contributions of $4000 for 2007 and $5000 for 2008 at the same time still leaves you $1000 below the minimum balance. It seems you can avoid fees by signing up for their "e-service package" (e-billing/statements). I'm a bit confused...

Should a Roth IRA be opened at Vanguard or do you suggest a brokerage like etrade, td waterhouse or the free zecco.com?