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Did I make a good decision? Retirement and Roth IRAs

R

Reel

Diamond Member
Over lunch with some coworkers of mine, we began discussing the 401(k) plan at our company and someone pointed out to me that today was the last day to invest in a Roth IRA for the 2005 tax year. After lunch, I quickly began researching and picked Vanguard because I have read good things about their index mutual fund. I decided to max out for 2005 and 2006 since I had the funds sitting in an ING account and I don't foresee needing it since it was unplanned income. I put it in the Vanguard 500 index fund VFINX.

I am new to having a job and accompanying income and have been tempted to throw this money into something I might regret later like a sweet HDTV. I figure that the index fund will probably go up over the next 35 years until I can cash it out so it is a better decision for my future. If there are any bad decisions, please let me know so I can correct it for the future. The areas I am wondering about are:
1) Getting a Roth IRA.
2) Using Vanguard for it.
3) Putting the money into the 500 Index fund.

Any other retirement planning advice would be appreciated. I am not eligible for the 401(k) until September and do plan on maxing out the company contribution when that time comes. Thanks.
 
Well, it's certainly not a bad decision. For the future though, I'd encourage you to dollar cost average over the course of the year.

This basically works out to dropping $333 a month into the funds. When you do this, you buy the most shares available when the price is low, and least shares available when the price is high. You'll see better returns over the long run this way.

In the short term, you may take a loss because the stock market is VERY high at the moment. It's sure to drop some in the short/mid term, but overall it will grow.
 
And another suggestion is to split out maybe 40% of that in the future into international stock. Even though you are indexed out, it's nice to balance out to other markets as well.
 
Originally posted by: vi_edit
Well, it's certainly not a bad decision. For the future though, I'd encourage you to dollar cost average over the course of the year.

This basically works out to dropping $333 a month into the funds. When you do this, you buy the most shares available when the price is low, and least shares available when the price is high. You'll see better returns over the long run this way.

In the short term, you may take a loss because the stock market is VERY high at the moment. It's sure to drop some in the short/mid term, but overall it will grow.
Click to expand...

just going off memory here but wouldnt index stocks be perfect for long term (>10yrs). i thought the market has gone up every year since the depression except for one or two.
 
Originally posted by: vi_edit
And another suggestion is to split out maybe 40% of that in the future into international stock. Even though you are indexed out, it's nice to balance out to other markets as well.
Click to expand...

I think the rule of thumb is ~30% in international?

I have 70% of my Roth in VFINX and 30% in VGTSX (Vanguard Total International stock Index).
 
Year to year the market goes up or down, it doesnt really matter. What amtters is that over 20 years, there has NEVER been a time when the market has gone down, so you're inluck for the long term.

Now if you wanted some good short term funds I would recomend BGEIX, FSENX, FSNARX, and PMPIX

Not sure how much upwards room they have, but theyre already up close to 40% since I got them (less than a year). Energy and gold FTW!!!
 
Good company and a good fund. By putting in over $5K (instead of just $4K) you saved yourself a $10 fee (account balance).

Dollar cost averaging makes sense, you can start that in January of 2007. I think you can tell Vanguard to take a set amount of a bank account each month.

Once you have over $10K in VFINX (saving a $10 fund balance fee) putting money into an international index fund at Vanguard is the next step.

In other words, what vi_edit said 🙂

 
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