I'm a 19 year college student and have just started a Roth IRA at Vanguard. I've been meaning to start one up for quite a while and I finally started one. I funded it with the minimum amount of $3000 and plan on adding more till I hit the max cap of $4000 for this year. Every year thereafter, I hope on contributing the max cap for that year.
My question to you guys is if I should regret buying the Vanguard 2050 Target Retirement Fund. I think at my age, I should go for something much more aggressive, perhaps I should even choose my own stocks or buying ETFs. Also, I have read that T Rowe's diversified retirement fund is a lot more aggressive than Vanguard's and also has a lower minimum but higher expense ratios.
Any other suggestions would be greatly appreciated.
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Wow! You've been registered since dec 2002, when you were 14 or 15 years old. Good for you and congratulations on starting to save for your retirement at such a young age. You should have quite a little nest egg by the time you're 70, especially if you continue funding your roth every year up to the maximum. Don't worry about being aggressive in the market right now: leave it in the target fund for a while, watch and study the market and learn.
But then again, it is a paper loss..... it will recover.
THIS IS YOUR FIRST LESSON IN IRA'S... Don't worry about daily gains or losses!
On another note, I suggest that if you want to be aggressive (while you are young), you need to diversify into HIGH RISK stuff now.... and be prepared to re-allocate that in 6 or 12 or 18 months...
Morningstar Xray shows that Vanguard Target Retirement 2050 is 88.26% stocks right now. I think most would consider that fairly aggressive. If you want more detailed recommendations, I would visit the diehards' board:
Expect the market-timing/stock-picking crowd to show up and tell you to put it all of your money in emerging markets, finance sectors, GOOG, etc... whatever's popular at the moment. Don't listen to them. The Vanguard 2050 Fund is well-diversified and plenty aggressive. Keeping putting money in the IRA as best you can, and don't worry about it until after you graduate and get a job.
I'm in much the same situation, just opened a vanguard roth ira about a month ago. I went with the same target fund as the OP, so far I have lost a little bit of money, but when looking at an ira you have to think with a long term perspective.
I think the target 2050 fund is a good solid choice to start, however I think the OP is probably thinking of buying some "hot" funds that are getting 25%+ returns year to date. One option is an emerging markets fund, I have thought about it as an option for 2008 when I can put more into my ira, but since the market is so volatile right now, I will have to reevaluate when I am ready to put the money in.
One thing I would keep in mind since you have $1k left to put in is to wait for the market to stabilize a little, odds are it will continue to go down over the short term, and since you have until next April to make your last 2007 contribution try to buy when it is low... but also keep in mind over the long run there really isn't going to be much of a difference between buying now or a few months from now.
One thing I would not do with Vanguard is buy stocks or ETFs. Their fees are much higher than discount brokers, and you need to open a separate "brokerage account" with them.
twsmit said:..One thing I would keep in mind since you have $1k left to put in is to wait for the market to stabilize a little, odds are it will continue to go down over the short term, and since you have until next April to make your last 2007 contribution try to buy when it is low... but also keep in mind over the long run there really isn't going to be much of a difference between buying now or a few months from now.
I agree.
"It's not timing the market that's key, but rather the amount of time you're in the market. Nobel laureate William Sharpe found that market timers must be right an incredible 82% of the time just to match the returns realized by buy-and-hold investors. While long-term investors were sitting tight, the market timer was fretting over when was the best time to get in or out of the market and not necessarily earning greater rewards." - Motley Fool
Choosing a targeted fund with a long horizon is in effect choosing risky assets. Sure you can try your hand at taking on more risk yourself (exactly what I am doing), but you had better have a strong stomach and a steady hand. Today's markets are a scary place to be if you don't have a long term expection (for when you will be postive, not withdraw the money). But, choosing your own stocks, and doing reserach is a good way to get interested and build knolwedge.
On the other hand, i've found that the markets are distracting me too much from my studies and I am trying to distance myself from them. Doing well in school right now will mean more to us in the long run than making a few thousand dollars extra (as a best case) by actively managing out own portifilio. If you can remain calm about your investments, and not become obsessed with checking them every 10 minutes, then put half in the targeted fund, and see how you do with half. At the end of the year, see who does better and make your decision.
(It seems so easy to give this advice to someone, but yet I can't take my own advice!)
turtlebug said:twsmit said:..One thing I would keep in mind since you have $1k left to put in is to wait for the market to stabilize a little, odds are it will continue to go down over the short term, and since you have until next April to make your last 2007 contribution try to buy when it is low... but also keep in mind over the long run there really isn't going to be much of a difference between buying now or a few months from now.
I agree.
"It's not timing the market that's key, but rather the amount of time you're in the market. Nobel laureate William Sharpe found that market timers must be right an incredible 82% of the time just to match the returns realized by buy-and-hold investors. While long-term investors were sitting tight, the market timer was fretting over when was the best time to get in or out of the market and not necessarily earning greater rewards." - Motley Fool
this is based on the fact that over long periods of time, the stock market has historically always gone up. but past performance is no guarantee of future returns...
OP - congratulations on starting your IRA before age 20. If you contribute 4000 per year for just 10 years and get decent returns, you'll be a millionaire when you retire even if you never contribute another dime.
Congratulations on starting on your Roth at an early age!
Your selection of Vanguard's Target Retirement fund is a good choice for almost hands-free retirement investing (another option would be T.Rowe Price's Target Retirement funds as well). Think of it as a "set-it-and-forget-it" but do keep an eye on it every now and then. Target Retirement 2050 (VFIFX is fairly aggressive at 88.3% stocks and the fund is up 8.21% YTD with a pretty low ER of 0.21%.
Both my wife and I have some holdings in TR 2035 (VTTHX) for our Roth IRAs and it's YTD is 8.22% despite the wild fluctuations in the market recently. You have the power and luxury of time working for you at your age.
A target retirement fund is a great foundation for your portfolio. You can put this year's contribution there, and use future contributions to increase your exposure to certain riskier asset classes (small cap, international, etc.) or to buy specific stocks.
Jonathan over at MyMoneyBlog is in the midst of re-allocating his portfolio and has a great series of posts discussing asset allocation from the beginning. This might be a good place to start learning about your options: Link
hoope4 said:Expect the market-timing/stock-picking crowd to show up and tell you to put it all of your money in emerging markets, finance sectors, GOOG, etc... whatever's popular at the moment. Don't listen to them. The Vanguard 2050 Fund is well-diversified and plenty aggressive. Keeping putting money in the IRA as best you can, and don't worry about it until after you graduate and get a job.
Get drunk. Hit on chicks. Don't drive.
Congrats. I started my Ira at Vanguard when I was 16 (I think) , been maxing it since.
That fund choice is fine, I'd keep it in the 2050 and keep maxing it.
As a former college student, I'd second that advice.
Party, don't drink and drive, have lots of protected sex with hotties, don't get married in your 20's and keep those grades up!
Expect the market-timing/stock-picking crowd to show up and tell you to put it all of your money in emerging markets, finance sectors, GOOG, etc... whatever's popular at the moment. Don't listen to them. The Vanguard 2050 Fund is well-diversified and plenty aggressive. Keeping putting money in the IRA as best you can, and don't worry about it until after you graduate and get a job.
At what age should you consider changing to a different fund?
Congratulations on starting your Roth at such an early age! While I totally agree with other FWFers regarding holding a lifecycle fund, here's another consideration...One thing to keep in mind is that the gains in your Roth IRA are not taxable. So different funds/stocks will have different tax efficiencies. I would hope that you will have other investments outside of your Roth IRA as you grow older. So a good way to maximize your Roth would be to hold tax inefficient holdings in your Roth while keeping the tax efficient ones out of the Roth.
For example if you have $5,000 worth of stock in company A in a taxable account and $5,000 in company B in a Roth. Company A has 10% dividend yield so at the end of the year you'd have $500 of taxable income. Company B issues no dividend at all. I believe the dividend tax rate is 15%...so you would be out $75 that you could have saved if you had held company A in your Roth rather than company B.
This is just a simple example, but it serves to illustrate the idea of how to maximize your gains. Good luck!
vprong said: Expect the market-timing/stock-picking crowd to show up and tell you to put it all of your money in emerging markets, finance sectors, GOOG, etc... whatever's popular at the moment. Don't listen to them. The Vanguard 2050 Fund is well-diversified and plenty aggressive. Keeping putting money in the IRA as best you can, and don't worry about it until after you graduate and get a job.
At what age should you consider changing to a different fund?
The beauty of a lifecycle fund is that you don't have to change to a different fund. Using Vanguard 2050 for example...as 2050 approaches the fund will automatically shift its asset allocation. So right now it holds ~90% in stocks. By 2045 the fund should have most of its money invested in bonds or other income generating securities that aren't subject to high market fluctuations since at that time you're more concerned with asset preservation rather than market gains.
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