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hello fool community,

i just recently turned 30 and married for almost 6 months now. it's time to put some money away for retirement and save up for the future. i'm a total newbie when comes to this stuff so be patient. i'm just about to open a roth ira for my wife and i. i have several questions regarding retirement. i have read many of the articles on fool.com, but my questions are more specific.

1) which company is the best to open an IRA account with? i'm leaning towards e-trade but will take any suggestions. i like the lack of fees and lack of minimum options to start an account.

2) after opening an IRA, it seems index funds seem to be the best thing to start with. i'm considered to be a low-risk taker. i want to invest in something that will bring solid long-term growth over the 30+ yrs. i do know eventually i will have to invest in some risky stocks. what's the general recommendation? which index funds have good returns? i kind of want to put my money in and don't worry about it for many years.

thanks for reading and appreciate any help or suggestions.

-hep1974

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1) which company is the best to open an IRA account with? i'm leaning towards e-trade but will take any suggestions. i like the lack of fees and lack of minimum options to start an account.

It really depends on whether you want to be self-directed, have your hand held, access to top notch research and gut feeling. Personally I use Scottrade where there are no account maintenance fees, account minimums, mutual fund transaction fees, and equity trading fees as low as $7.

2) after opening an IRA, it seems index funds seem to be the best thing to start with. i'm considered to be a low-risk taker. i want to invest in something that will bring solid long-term growth over the 30+ yrs. i do know eventually i will have to invest in some risky stocks. what's the general recommendation? which index funds have good returns? i kind of want to put my money in and don't worry about it for many years.

You should be comfortable in what you invest, but at your young age, taking on some risk will be more rewarding 30 years from now. Many Fools like Vanguard, especially the S&P 500 and Total Stock Market index, but generally speaking you just need to look at the key indicators, such as performance, turnover, expense ration, divididend yield, management tenure, and such and be sure to read the prospectus.

Take a step back, however, do you have an eFund valued at 3-6 months living expenses for if you suddenly lose income? Do you have a Household Fund for regular living expenses you can't predict (car/HVAC repair)? Are you contributing to a 401k up to the company co-match? Are you contributing to a Roth IRA? Are you then contributing the remaining amount of your 401k? These are all steps to being able to retire on your own terms.

Fuskie
Who congratulates you on your 6 months of matrimony...
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Welcome hep1974, and congratulations on both your new marriage and taking control of your finances!

1) which company is the best to open an IRA account with? i'm leaning towards e-trade but will take any suggestions. i like the lack of fees and lack of minimum options to start an account.

In addition to e-trade, check out Ameritrade and Scottrade. I personally use Scottrade for the following reasons: $500 minimum for IRAs, no maintenance fees, free mutual fund trades, $7 equity trades, and, to a lesser extent, a local branch office.

2) after opening an IRA, it seems index funds seem to be the best thing to start with. i'm considered to be a low-risk taker. i want to invest in something that will bring solid long-term growth over the 30+ yrs. i do know eventually i will have to invest in some risky stocks. what's the general recommendation? which index funds have good returns? i kind of want to put my money in and don't worry about it for many years.

Indexing is a solid, proven method to invest. A couple of books you might want to check out are:

The Coffeehouse Investor by Bill Schultis (sp?)
Four Pillars of Investing by Wm. Bernstein
The Lazy Person's Guide to Investing by Paul Farrell

All 3 deal with the merits of index investing, and the last one is the most recently released book which compares the two aforementioned methods with a couple of other methods out there.

Good luck!

-Agg97
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hep1974...

i just recently turned 30 and married for almost 6 months now. it's time to put some money away for retirement and save up for the future. i'm a total newbie when comes to this stuff so be patient. i'm just about to open a roth ira for my wife and i. i have several questions regarding retirement. i have read many of the articles on fool.com, but my questions are more specific.

1) which company is the best to open an IRA account with? i'm leaning towards e-trade but will take any suggestions. i like the lack of fees and lack of minimum options to start an account.

2) after opening an IRA, it seems index funds seem to be the best thing to start with. i'm considered to be a low-risk taker. i want to invest in something that will bring solid long-term growth over the 30+ yrs. i do know eventually i will have to invest in some risky stocks. what's the general recommendation? which index funds have good returns? i kind of want to put my money in and don't worry about it for many years

------------------

Without knowing any more then you have given us - I would suggest that you take a look at Vanguard's Targeted Retirement Funds. They are a fund-of-funds in one package that are basically "Feed it and ferget it" investments:

http://flagship4.vanguard.com/VGApp/hnw/content/Funds/FundsVanguardFundsTargetOverviewJSP.jsp?Entry=spotlighton02

At your age, the Target Retirement 2035 Fund would probably suit you and your wife:

http://flagship4.vanguard.com/VGApp/hnw/content/Funds/FundsVanguardFundsTarget2035SummaryJSP.jsp

It holds the following Index Funds:

1) Total Stock Market Index Fund....64%
2) Total Bond Market Index Fund.....20%
3) European Stock Index Fund........11%
4) Pacific Stock Index Fund..........5%

It gives you instant diversification, no rebalancing - because it is done for you, and a low-fee Vanguard Index Fund. It can be opened in a Roth IRA for $1,000.

Regards,
Bill


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I find it quite remarkable that index funds can be characterized as "safe".

Consider the facts (as of Oct 26, but not changed much):

S&P as represented by VFINX with distributions reinvested had, since 1994, a 10.2% return with a 47.5% drawdown.

NASDAQ index had, since 1994, an 8.8% return with a 77.9% drawdown.

Russell 2000 index had, since 1994, a 7.7% return with a 46.0% drawdown.

Of the three things mentioned above, only the Russell 2000 is in positive terrority since 5 years ago.

So if you had put money into VFINX 10 years ago, you would have profit, but over the last 5 years you would have a loss.

Of course, past performance is no guarantee of future results. In the future you could get 10%/year for the next 10 years with no significant drawdown. Or you could get 5%/year with a 60% drawdown. Nobody knows.

In any case, there is such uncertainty that there needs to be a better way, and there is.

But the important thing is to get rid of this idea that there is safety in index funds. If I had gotten results like those above, I would be seriously reconsidering everything.

So I advocate timing and trading. Not difficult, and it does not have to require much work at all. Check out my previous posts, and ignore the random walk, efficient market stuff. That is mathematically unsound.
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So I advocate timing and trading. Not difficult, and it does not have to require much work at all. Check out my previous posts, and ignore the random walk, efficient market stuff. That is mathematically unsound.

If it wasn't difficult, we'd all be rich. In any trade, there is a loser and a winner. So, I guess we can't all be rich, only significantly less than half of us.

The odds are that if you time the market, without being an astute investor to begin with, you will lose over the long run; more likely over the short run.

Hedge
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The odds are that if you time the market, without being an astute investor to begin with, you will lose over the long run; more likely over the short run.

I wonder why that has never happened to me. I don't think of myself as being particularly astute. At any rate, it seems reasonable to avoid high risk things like index funds, if you are not able to time.
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Author: joelxwil | Date: 11/30/04 10:08 PM | Number: 43360
<<The odds are that if you time the market, without being an astute investor to begin with, you will lose over the long run; more likely over the short run.>>

I wonder why that has never happened to me.

It will.
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Joel,

For the sake of discussion, lets just say your market timing scheme works, and you can beat the market.

That would mean you have found an inefficiency in the market and a way to exploit it. That's something the vast majority of the best money managers can't do - and by best, I mean people like the pension managers at fortune 500 companies.

But lets just say you can do it... Congratulations! But now what?

This is like walking into a casino and making money because you know the game better than the dealers. But here, the dealer gets to change the rules whenever he figures out you've caught on.

There are a lot of brilliant people in the world trying to find and exploit such inefficiencies. Every time one of them takes advantage of your timing mechanism, it works to counteract it (I assume you understand why that is, and would agree on this point).

If your mechanism is really profitable, it is only a matter of time before it is exploited extensively enough to remove it. How many hedge funds do you think it would take to do it? Once that happens, it is only logical to expect this trading mechanism would behave like the average trading mechanism - significantly below passive investing.

That is probably only a minor concern for you. Since you are a sophisticated enough researcher to find this, you presumably would have a change at identifying when it no longer works. So you could move on to the next great inefficiency.

But what about the amateurs you recruited? If they weren't capable of identifying this initially, how soon do you think they would catch on if it lost its effectiveness? If they truly believed in your method, they may not have much left by the time they gave up.

This is why I think it is irresponsible for you to make recommendations like this to amateur investors.

I see the question of whether or not this works as an interesting intellectual debate.

But I think whether or not your mechanism works, has no bearing on whether or not it is appropriate to suggest this to new investors.

FWIW, I'm not trying to get you to go away. I just don't think threads like this are the place for this discussion.

-Joe
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Ah, faith in my doom! How charming. How religious.

But don't worry, rk, we need people like you to take the losing trades.


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Well, in the first place, Joe, it is not a matter of inefficiency in the market. It is only a matter of catching the trend. The market, as a whole, may be extremely efficient. It may just reflect the fact that things are going to hell in a handbasket (as March 2000) and you should get out. Nothing particularly inefficient there. The people who stayed in were dolts.

So far as the amateur investors are concerned, they do not need much sophistication to go to a place like TimingCube to see the results of decent, although not perfect market timing. There are other alternatives, such as the timing algorithms on my site, not written by me, which do quite well.

But the fact is that when somebody asks what they can do, I will say what I believe. And one of the things I believe in is common sense. It should be obvious to anybody that there are times to be out of the market, or perhaps short. So then it is a problem to be solved as to which state you should be in: long, short, or cash. There are solutions to that problem that are not perfect, but they sure beat an index fund.

But so far as the so-called amateur investor is concerned, it is not an easy task. Every now and then somebody asks if he should pay off his mortgage or "invest in the market." Now paying off the mortgage is easy: just send money. But investing in the market, if you want good returns, is not easy. It requires discipline and training. The idea that you should go into the market without discipline and training is a really bad idea.

If you are not willing to go through the discipline and training, then just pay off the mortgage.

I am not worried about many people catching on to any timing scheme. So many people are just plain lazy. They don't pay attention, like my neighbor who has owned SUNW since 1999. It never occurred to him to sell. Then there are others who believe this efficient market stuff. They are just sheep, and their convictions, based on bad mathematics which they probably never understood, will keep them in the market and make it easy for those of us who know better.

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But the fact is that when somebody asks what they can do, I will say what I believe. And one of the things I believe in is common sense.

If this were true, then you wouldn't criticize Warren Buffett's methods so much.
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Hep,

Congratulations!

It sounds like you have a good plan and will do fine. A few minor comments that might be worth what you pay for them: $0.

I have accounts at Ameritrade and Scottrade. Either of them or Etrade is a great choice. I think Scottrade is a little better because it has no transaction fees on mutual funds (including the index funds you're considering).

Vanguard index funds are great, but they charge an extra $10/year fee if you have less than $10,000 in the fund. If you think it will be a while until you get beyond that, you might want pick just just one fund to start out with.

I'd second the recommendation of any of the following: S&P 500 index fund (the standard),TSM - Total Stock Market (almost the same as the 500, but a little more diversification), or a targeted retirement fund (even more diversification).

If you're interested in learning more about asset allocation, there are many great books.

See http://boards.fool.com/Message.asp?mid=21665962&sort=whole if you're interested.

After reading some of these books, you may want to change your allocation a little based on your specific risk tolerances (the market, and market funds like the S&P 500 are skewed towards large cap growth stocks). Some slice & dice between asset types, and some don't. There are plenty of index funds you can use to do that, if you decide to. But don't let thinking about this get in your way of starting now.

BTW, I'm 25, married 5 years :)

-Joe
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Vanguard index funds are great, but they charge an extra $10/year fee if you have less than $10,000 in the fund.

Hi, Joe!

I thought I read on this board awhile back that if you hold that Vanguard fund through Scottrade, that low balance fee doesn't apply. Is this not so?

thanks
3MM
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joel...

I'm not the smartest kid on the block, but I do know that if I have a way of looking at something and most everyone else has a way that is contrary to mine, that I may need to take another look at my logic.

You have as much a right as any of us to make your opinions public on this, or any other board, however, this board and especially the "Investing Beginners" Board, where you post frequently, are in my opinion, not the place to advocate your highly controversial investment strategies. Maybe you should start a "Market Timing Board", or something similar, to sell your ideas.

You have to accept a certain amount of responsibility for possibly starting a young, inexperienced investor down the road to financial ruin just for the purpose of validating your own misconstrued ideas about effective investing. Prudent investing need not be a maze of mathematical formulas, historical data, and complicated charts. It isn't laziness to take the most efficient and expeditious route to accomplish important tasks. Work smarter, not harder comes to mind.

Anyway...I wish you well and I wish you would think about what I have said...and then go away!

Bill

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I thought I read on this board awhile back that if you hold that Vanguard fund through Scottrade, that low balance fee doesn't apply. Is this not so?

This is correct. There are two minimums involved here. The fund itself has a minimum investment, usually one for retail and one for retirement investing. Then the brokerage account may have a minimum investment amount to waive the account maintenance fee. In the case of a Vanguard fund in Scottrade, you still have the mutual fund's minimum initial investment, but there are no account maintenance fees.

Fuskie
Who likes getting the best of both worlds...
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i'm just about to open a roth ira for my wife and i.

You do know that you have to have separate IRAs?
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<<I thought I read on this board awhile back that if you hold that Vanguard fund through Scottrade, that low balance fee doesn't apply. Is this not so?>>

This is correct.

I stand corrected - and quite happily since I have a Vanguard fund at Scottrade with under $10k.

-Joe
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thanks fool members for your input. i'll do my best to incorporate your suggested recommendations. i guess it all comes down to your own research on where to put your money. everybody has their own opinions on how to invest for maximum growth. nothing is ever fool proof and nothing is ever "safe". it's all about getting through the ups and downs, but hopefully, the overall trend is up.

i understand that i will need to open separate accounts for myself and my wife.

i do have another question. in the beginning i won't be able to put too much away for retirement because of my current budget. i've read articles that even a little per month is better than nothing. is that true? for example, if i put like a measly $50/mo each for me and my wife for the next 30yrs. can i really do much with that? i still have the thinking that "if you don't have much, why invest?" obviously, that's not my plan but if that were the scenario - could it still work?

thanks for reading...all of you have been helpful.

-hep1974
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hep1974: "i do have another question. in the beginning i won't be able to put too much away for retirement because of my current budget. i've read articles that even a little per month is better than nothing. is that true?"

Yes.

"for example, if i put like a measly $50/mo each for me and my wife for the next 30yrs. can i really do much with that?"

Yes. Somewhere around 200k total if your CAGR is 10%. I do not have a spreadsheet designed for monthly investment, but when I run $1200 invested per year for 29 years (i.e., as if you were investing the $1200 on December 31, year-end of each year) I get $196,192.83. Get a 12% CAGR and you would have in excess of $288,000.

"i still have the thinking that "if you don't have much, why invest?" obviously, that's not my plan but if that were the scenario - could it still work?"

It little bit helps, and starting now helps ingrain the decision to invest; waiting until xyz often leads to then waiting for abc, and then def, so that you never really start investing.

Regards, JAFO

thanks for reading...all of you have been helpful.

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for example, if i put like a measly $50/mo each for me and my wife for the next 30yrs. can i really do much with that?

I don't know about everyone else but we started with very little but we started in our early 20s and at 50, I can say, it's worth doing and it does add up.

I think many people get hung up on the "I can't start big so I won't start." Those people look around at 55 and realize, they're going to have to be working way longer than they intended.

I wouldn't get hung up on reaserch to start with either. If you feel you can't lose it, start with something with very low or no risk. Don't feel you need to start with mutual funds or stocks if the idea of losing 20% makes you lose your lunch. Stay in your comfort level - no matter what anyone posts.

rad
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i've read articles that even a little per month is better than nothing. is that true? for example, if i put like a measly $50/mo each for me and my wife for the next 30yrs. can i really do much with that? i still have the thinking that "if you don't have much, why invest?" obviously, that's not my plan but if that were the scenario - could it still work?


I'm a big believer in starting a savings program. Just start. Pick any amount, no matter how small, and put that same amount away every interval whether that is weekly or monthly. What you're really doing at this point is setting up your own discipline to actually save some set amount every week or month, and you will find that once you have that discipline in place, adjusting your set number upward doesn't become that difficult.

Something that I have found works well, especially when you are starting out, is to pick some small number like $10 or $25 a month, and set that aside. Then increase that amount by $5 every month until it's too much, and back it down to the previous level. That will slowly get you up to a reasonable savings number for your own budget, income, and expenses. When you get raises whether it's from an annual raise on the job, changing jobs, or eliminating some regular expense [with us, it was things like diapers for the kids, and then daycare], then take that amount and add it to your regular savings. The logic is that if you're already living without that money, then you can continue to live without it by adding it to your savings.

I started us out by putting aside $25 a week [I got paid weekly in those days] that I put into savings, and over the years I have increased that amount by doing what I noted above. I did increase our budget somewhat along the way, but not to the same level as the dollars that were being added to the income, and most of that was to support having the twins and their expenses. But over the past 20 years, I've managed to increase from $25 a week to putting aside many multiples of that a week, not including my 401k contributions. And if you do it by adding things like raises as you get them, you won't even notice it a hit to your budget because that money was never in your budget.
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Hi Hep!

in the beginning i won't be able to put too much away for retirement because of my current budget. i've read articles that even a little per month is better than nothing. is that true? for example, if i put like a measly $50/mo each for me and my wife for the next 30yrs. can i really do much with that?

In investing, time is everything! No amount is too small to start! The sooner you start the more flexibility and freedom you will have later!

Here's a quiz:

Assuming each investor leaves their money invested until the age of 65,
which investor will have more money at age 65?

Investor A: Invests $2000/yr for 9 years from age 22 through age 30, a total of $18,000.

Investor B: Invests $2000/yr for 35 years from age 31 through age 65, a total of $70,000.

See the link below for the answer:

http://www.wiser.heinz.org/investingfacts.html

2old
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Heya Hep,

Well you've already heard it all. Never to early to start no matter what you're amount is.

Here's some places you might want to check out as far as early starters. Also, check with Scottrade or Ameritrade to see what their initials are as they might be low as well.

I'll put them in order of what I think might work out best for you.

TIAA-CREF - you can open an account for $50 and then each subsequent deposit must be at least $50. But of course you'll be setting up an automatic withdrawal from your paycheck right? :-)

T. Rowe Price - Same deal

USAA - You can start with 0 as long as you have automatic deposits afterward I believe. $50 for each subsequent deposit.

Here's the article that was written for you I think...

Put Saving on Autopilot

By ELIZABETH HARRIS
SMARTMONEY
January 18, 2004

Got $50? Then do yourself a favor, mutual-fund investors. Sign up for an automatic investment plan.

These plans force you to save money before you spend it. And they create another good habit, because they use a tried-and-true investing strategy known as dollar-cost averaging. You make periodic small purchases of a fixed dollar amount of fund shares, buying more shares when prices are low and fewer when prices are high.

The most common way to do automatic investing is through a 401(k) retirement plan at work. But automatic savings needn't stop there.

Many mutual-fund companies offer automatic investment programs, which allow investors to arrange for monthly sums to be zapped from their checking or savings accounts into a fund of their choice. The fund accounts can be taxable or tax-advantaged, but there's less exasperating paperwork with a tax-favored retirement account, such as a Roth IRA.

To reel you in, many fund groups will lower the minimum initial investment for people who sign up for automatic plans. After all, these plans help fatten a fund company's bottom line. As more dollars flow in, it can collect higher annual expenses, which are based on a percentage of fund assets.

Automatic investment plans are a good thing, says David Yeske, a certified financial planner with San Francisco's Yeske & Co. "It creates an entry point for people who otherwise wouldn't have it available to them," he says. "Secondly, it gets people in the habit of saving. It's automatic -- they don't have to think about it."

And so, in honor of those whose New Year's resolutions were to get their financial houses in order, we ran a computer-driven fund screen to compile a list of automatic investment programs offered by the biggest no-load fund groups around (minus those tainted by the recent fund scandals). If your favorite financial firm isn't included below, a quick call to its toll-free 800 number will confirm whether it, too, offers an automatic investment plan. Keep in mind that many brokerage firms also offer the plans.

You have no excuse not to get started with fund groups that don't even require an initial investment. USAA, which caters in part to military families, will let you open an account on just the promise of regular $50 contributions thereafter. (For a handful of funds, $20 will do.) Of course, you can always invest more. Some other fund groups allow investors to jump in with a mere $50, including TIAA-CREF, T. Rowe Price and Artisan.


Good luck!!!
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Just one other point.

When you are studying Mutual Funds, make sure you look at the stocks that are held in those funds. I have found folks that think they have good diversification only to find that most of their funds held the same companies.

I would suggest spending lots of time here and at Morningstar.com where there is oodles of great information. There are forums there also.

Until you decide just what to do, start putting that money into savings.

And remember to fund that 3-6 month emergency fund!

If you are willing to do your own research, I am very happy with Scottrade also.

Glad to have you here!
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