ETFs are really a good option, especially if you don't want to actively manage a portfolio (plus most people don't know enough and aren't disciplined enough to make money actively trading).

The only problem with picking a single fund (like s&p 500) is that it puts all your money into a small subset of the market. They are all going to be large companies and only US stocks.

I am a fan of fundadvice.com. Many of their portfolios are targeted to a slightly older age group. They heavily stress low expense ratios. The other big thing (according to them) is to hit the right asset classes. This link has example portfolios. Look at the 'Vanguard equity buy and hold' example portfolio for ideas on what type of allocation you might want. They also had an online Podcast if you want to listen to their weekly discussions.

I almost opened an account at Vanguard. My biggest issue with them was that they have a minimum per fund or they start charging fees. The minimum is waived if you have a large enough account. Fidelity may be more friendly to a small account but I really haven't looked into it.

Vanguard's IRAs (Normal and Roth) have lower minimums than their regular accounts, so keep that in mind. Also, if you are going to invest small amounts over time (say $100/month), then I would recommend no-load mutual funds over ETFs. That just because the trading cost for buying the ETF is large compared to the deposit you're making. For example, Scottrade charges $7 per trade, so that's 7% of your investment gone each month. That's a lot to make up. And that's if your just buying one ETF. If you want to diversify your ETFs each month then that's an even bigger chunk of money lost. If you have large sums of money to invest, then the trading costs become smaller percentage and ETFs make more sense because the managing fees are usually less than the corresponding mutual funds' fees.

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.

I'd like to put in my 2 cents worth which is worth 2.4 cents since copper went up lol
first when you are just starting out and realy don't know what you are doing the best bet is ETF'S or MUTUAL FUNDS
try to pick sectors that you think will do well in the future ( I mean the next 1 to 3 years ) you don't want to pick something that will take 20 years to get hot
because things go in cycles what might be doing bad now in the years ahead could get hot and when it gets to hot then sell an move to something else that you think will do well in the future
next read read read and learn so you are better prepared to do your own picking
learn charting its not the be be all end all but it helps to find things that are in trends
here is a site to start your reading

Link
It has some off the wall writers as well as some main stream writers but you can learn from both kinds
learn to think for yourself and you will do great

What do you guys think about a ROTH IRA...in

Index Funds?

or

Target Retirement?

I can't decide!
I think I want to stear clear of Mutal Funds because of the fees, and do Index Funds instead, what do you think?

Hmm..intresting

My problem is that I want to open a ROTH IRA, currently I made about $500 bucks a month, with the hours I'm working. I have a lot more in my HSBC account over $5,000 However I just started the job, I understand with an IRA you can only invest as much as you make, what do you think would be the best approach for me to invest?

BlahBlahBlah32 said:Hmm..intresting

My problem is that I want to open a ROTH IRA, currently I made about $500 bucks a month, with the hours I'm working. I have a lot more in my HSBC account over $5,000 However I just started the job, I understand with an IRA you can only invest as much as you make, what do you think would be the best approach for me to invest?
Ok, an important detail to understand is that its not a matter of how much more you have made in your job of yet, its how much money you are making this year. The hard limit is that 4,000 dollars is the Roth IRA contribution limit this year unless you are more than double your current age. Basically, you can calculate how much money you are likely to make this year, (this is your total taxable income before you pay any taxes) and then immediately invest that amount into a fund. (Just make sure you have enough money (or some other source of financial support) in case something happens still left in your savings account.) The only catch is if for some reason you don't end up making as much money as you had expected, you have to pull that extra money out of the Roth IRA. The IRS doesn't care if the money is coming from your HSBC account now and you're only actually getting most of the money from your job later this year.

At your age you probably can afford to completely invest in stocks right now and avoid bonds. (While there can be debates on the subject, unless you are going to attempt market timing, historically trends have shown you will make more money in the long term from sticking your money in stocks over the longterm and holding them, the key is your young enough to recover if stocks drop in the short term.) Personally I'd be inclined to suggest Vanguard's Total Market Index Fund. It basically will track the overall US stock market and has very low fees which is key to maximizing your returns over the long term. While in the longer term you might want to look at diversifying into some international stock fund as well, in the short run sticking with the Total Market Index Fund is probably a good idea. The one key to remember with the Vanguard funds is you need to have 5,000 dollars in the fund by next year at this time to avoid maintenance fees if you buy in now. While there are more complex strategies out there, there is alot to be said for keeping it simple.

My inclination is to say avoid buying an ETF right now because you are not absolutely certain how much money you will make this year. With a Vanguard Index Fund you can add relatively small amounts (it can count for this year if you do it before paying taxes in April of next year) without the broker costs that are involved with buying an ETF and make it important to buy ETFs as lump buys rather than in smaller amounts periodically.

DBFinley said:Hi I'm looking to start a Roth IRA, and have basically narrowed my options down to Vanguard and Fidelity

Why would you open the account anywhere other than Firstrade? They offer thousands of Mutual funds (including Fidelity and Vanguard funds) with no transaction fee and no load. Plus, if you want to buy an individual stock or ETF down the line, it only costs $7 instead of the $40 or whatever Fidelity and Vanguard charge. As long as you don't want to call and talk to an investment advisor all the time, there are really no befefits to opening the account directly with Vanguard of Fidelity.

(Please, if someone knows an advantage of opening directly with Fidelity or Vanguard, I am very interested. I just can't think of one.)

Can anyone link a site that explains Roth IRA's in a simple easy read, without all the fancy dooda about how you will soon be a millionare trust us.

I'll be 19 soon and I want to open one with the money I will be making through internships this year, I heard you need to invest over the next few years as well but next year with my busy schedule I probably won't be able to work. I'll have enough saved from past jobs to contribute but as a student I won't have any income for the year.

So I simple website or break down would be very helpful and greatly apreciated. Thanks