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Wife is 31 and started her career about 3 years ago. Employer doesn't offer any retirement plans or contribution so she will need to open a account on her own. Will a ROTH in a Index funds or Mutual Fund a good start?
Ideally the retirement plan should be easy to self contribute and manage, thank you.
She gets an A for a lot of reasons. I would stick with ETF's. To start either a world stock fund or a US stock fund. Large cap.
The ROTH is a very good decision and I am surprised that a lot more people to not pick it. She should read the educational info Vanguard has.
for whatever reason they , give roths perks that go far beyond just prepaying the taxes .
roth income does not count towards all the things that are income linked in retirement .
everything from what you pay in medicare premiums
aca subsidies
medicare/aca surcharges
utilizing the zero capital gains brackets
GETTING YOUR SS TAXED
are all linked to your retirement income so it is NOT about just what tax bracket you may be in later on .
roths can be even more beneficial when rmd's kick in . they can do all kinds of tax nasty's .
the nice thing too ,is at 70-1/2 you have to take those rmd's and at the point even if you reinvest that money in a brokerage account all future distributions are taxed .
roths still maintain tax free growth after 70-1/2 .
the most over looked factor is that people make a flawed comparison .
they take their final years income and compare it to when the pay checks stop .
wrong!
what you need to do is compare a 30-40 year long term average of your tax brackets. most normal jobs ramp up in income over 30-40 years . you start low and ramp up through the brackets generally . that long term average is usually lower than your retirement tax bracket since we tend to live a lifestyle somewhat based around our final years income
some jobs have you coming in at high incomes day 1 , like attorney's ,doctors , bankrs , etc . their long term averages may be higher so roths may be less effective in that respect .
if anyone thinks roths vs traditional is about just tax brackets you may want to brush up on your knowledge about retirement .
While it's true the state tax benefits of a Roth differ from state to state it's still a big advantage to have over 30 years of growth that is federally tax free and as we all know fed taxes are much more than state. I would seriously consider at least a portion be put in a Roth for this reason as well as all the other benefits MJ illustrated.
Back to the opening question not sure how Vanguard does it but I suspect it's similar to my Schwab account where an ETF is much less expensive to purchase than a mutual fund. They are essentially the same thing in most ways.
What to chose is a question discussed here often. The overwhelming majority opinion is to do just as you say, low cost index funds. The options include an S&P 500 index, which is good overall exposure to a variety of stocks. Another option is a total stock market fund which isn't much different as it is weighted towards larger stocks but mixes in some smaller companies as well. So to start one of those 2. As the account grows she needs to diversify a bit. A small cap index will have more volatility but she has the time to ride those out and it can really bump up the returns. Mid caps as well, then international belongs in there as well for more diversification. A typical portfolio may have 10% of those 3 with the remainder in a 500 or total market index ETf. She has too much time to consider bond funds IMO, when she gets in her 40's she may want to mix in some to offer more safety. Or switch the majority into the ever popular Vanguard Wellington, a managed fund with very low fees for a managed fund. Holdings vary but it tends to be 65% stocks, 35% bonds.
Last edited by DaveinMtAiry; 08-12-2017 at 07:45 AM..
i would ditch the bnd . it's adding nothing to the mix and just cutting long term gain poitential
Agreed on the bonds, she is too young to have bonds drag down her returns. 25% in international, which have had brutal returns for the last decade, is too much for me. I own international as it's got to bounce back eventually, but only 10%%.
I'd visit bogleheads.org and do a simple 3 fund portfolio.
I'd do
65% VTI (Vanguard Total Stock Market Index)
25% VXUS (Vanguard Total International Stock Market Index)
10% BND (Vanguard Total Bond Market ETF)
Simple and effective and ETF's have the same expense ratio at admiral shares of the mutual fund.
She can contribute up to $5500 per year which isn't as a good as the $18k of a 401k program.
This is good advice. The role of bonds has been debated, but with decades to invest I agree with MJ that they are not necessary. Rethink as you approach retirement.
I think the most effective and easy way to invest would be to set up a direct deposit through Vanguard or Fidelity and have x amount come out of every paycheck. Then forget about it.
Agreed on the bonds, she is too young to have bonds drag down her returns. 25% in international, which have had brutal returns for the last decade, is too much for me. I own international as it's got to bounce back eventually, but only 10%%.
agree.
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