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Ok! I've seen the light and am taking responsibility for my financial future like a true fool. I have opened ROTH IRA's for my wife and me in Ameritrade. I have $2k in each account (I have also rolled over and ROTH converted my other IRA's into Ameritrade in separate accounts as they know cannot be added to). I just logged on to Ameritrade with my new account# and PIN and find myself stuck....I didn't realize I couldn't make a purchase with a set $ amount....rather it seems I must put the number of shares down that I want to purchase. I need help in deciding how to work the Internet purchase screens in Ameritrade to complete the Foolish Four Portfolio strategy. There must be a page describing how to use an online Discount broker to use the foolish four approach with an IRA. If you can point me to a message or web page in this site I would appreciate it.

I am using the Foolish four approach.

Here are some specific questions I need help with:
Since my 2K is divided into 4 equals parts, $500:

(1)How do I purchase 4 equal dollar amounts (or close to equal) of the four foolish stocks when I don't know the price my stock purchase will be made at when the market opens?

(2) ...can I pay the Ameritrade $8 charge per trade outside my ROTH IRA...if not I then have $492 per foolish stock...right?

(3) ....How do I make the purchases without spending more then I have in my account and not leaving too much in cash.....then what do I do with the remaining balance in cash (if there is one) in my ROTH IRA....DO I just leave it until one year later I add $2K more and then re-allocate my Foolish Four???

(4) and lastly (boy will anybody be foolish enough to answer all four questions?) since I am starting my Foolish Four plan in April, my one year anniversary will always be 3 and 1/2 months into the year...before I add another $2000 to the foolish four....and I will be loosing 3and1/2 months of compounding power. Any way to stop this from happening (maybe starting again in January 9months later with another 2K and reallocation of the foolish four?

Your thoughts on these questions are much appreciated.

Thanks for all your help. I can't wait to get started.
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It's tricky to purchase shares for an IRA, because you naturally want to invest all the funds, but if the IRA is already fully funded for the year, you can't add any more funds so it's important not to go over.

The first thing is this: buy only while the market is open! Don't enter orders while the market is closed, because there is too much chance that the stocks will open at different prices.

If you absolutely can't be online during the business day, find out how to enter "limit orders." Ordinarily you buy with a "market order," which means that the broker will execute the trade at whatever the current price is. With a limit order, you're telling the broker to execute the order only if the stock can be bought at a price no higher than the one you specify. That means that if the stock opens above your limit, the order won't be executed (unless the price later falls back within your limit).

If you can be online, it usually works to check the price, figure the number of shares, and put the order in immediately. But don't go right up to your last available dollar, because the price might rise a fraction before your order can be executed.

Purchase only one stock at a time. Stay online until your order shows as executed and then recalculate your remaining funds. Start with the highest-priced stock and work down; buying the lowest-priced last increases your chance of getting fully invested.

You can't pay the commissions from outside the IRA, so deduct the amount of the commissions from your funds available before you start.

If this works, you will have a little cash left in the account. Furthermore, since the FF stocks all pay dividends (by definition), dividends will be credited to the cash side of your account periodically through the year.

If the amount is not large, just leave it there until it's time to rebalance the portfolio - many brokers automatically transfer cash into a money-market account. At rebalancing time, add together the value of the stocks, the accumulated cash, and any new cash that you're ready to invest. Then deduct the anticipated commissions, remembering that you will be both buying and selling shares, and that the commissions are charged on both transactions.
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Thank you for raising this question about getting started with Roth IRAs with the FF. I have a question about this topic, and want to extend it a little further.

If I understood the advice in the MF book correctly, it was advised that starting off with small amounts of money (eg the first 2K of a Roth IRA for oneself and one's spouse) in stocks would be a killer on commissions.

My situation is that I have about $20K to invest. If I were to reproduce the FF in 2 Roth IRAS ($2K ea) and one regular brokerage account (with the $16K left over), that'd mean 12 commissions at one go--8 of which would come out of a pot that was only $4K to begin with (the 2 IRAs). Is this incorrect? Then I thought about somehow dividing the whole $20K into 4 lots to lessen the commissions, but that would've meant each IRA would have been invested in one security which didn't seem right either ... My 2 dum questions are:

1. What are the relative merits of, say, doing the no-load index fund thing with the IRAs for a few years until there's enough in each IRA not get nailed on commissions, versus just plunging in as the courageous Leaner2 has done?

2. Is the correct strategy to reproduce the FF in _each_ of the three accounts I want to open?

Thanks
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In order to not get killed with commissions on a $2K IRA, I've been using UV2 instead of UV4; half the commission, slightly higher historical return, but higher volatility.

Alternately, it is reasonable to aggregate your accounts to split up the Foolish 4 -- Personally, I'd keep the IRA's and taxable accounts seperate, but it makes some sense to buy 2 stocks in one $2K IRA and 2 in the other. You start to run into a little trouble if one stock really takes off and then it's rebalancing time, since you will have more in one account than the other. However, even with the unbalance, you could stick with this scheme until you have enough in the accounts that you can buy the whole fool 4 in each without getting killed by commissions.

Bill
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>> 1. What are the relative merits of, say, doing the no-load index fund thing with the IRAs for a few years until there's enough in each IRA not get nailed on commissions, versus just plunging in as the courageous Leaner2 has done?

2. Is the correct strategy to reproduce the FF in _each_ of the three accounts I want to open?
--------------------
Reproducing the FF in each of the three accounts doesn't seem like a good idea to me, just because of the commissions it will entail. (Remember that when you rebalance the FF portfolio after 12 or 18 months, it will entail more commissions because you'll be selling some stocks and buying others.)

What I've done is treat my two brokerage IRA accounts as a single portfolio. (One is a traditional IRA and one is a Roth.) I funded them with my 1997 and 1998 contributions, respectively, and bought two FF stocks in one and two FF stocks in the other, so that I was paying one commission on each investment of about $1,000.

Actually, I should probably think of all my retirement investments as one portfolio, even though the largest component is a 403(b) over which I have very limited control.
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<<What I've done is treat my two brokerage IRA accounts as a single
portfolio. (One is a traditional IRA and one is a Roth.) I funded them
with my 1997 and 1998 contributions, respectively, and bought two FF
stocks in one and two FF stocks in the other, so that I was paying one
commission on each investment of about $1,000.>>

You will discover the problem with this approach after the 3rd or 4th update. I was doing this with UG, which updates monthly, so the flaw shows up real quick.

You can't keep the two accounts in balance, so after awhile you will not be able to buy equal dollar amounts of the 4 stocks. You can run a simple experiment to prove this yourself--just get the FF stock list for the last 10 years, and simulate the 10 years of updating.

Regards,
Ray
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>> You will discover the problem with this approach after the 3rd or 4th update. I was doing this with UG, which updates monthly, so the flaw shows up real quick.

You can't keep the two accounts in balance, so after awhile you will not be able to buy equal dollar amounts of the 4 stocks. You can run a simple experiment to prove this yourself--just get the FF stock list for the last 10 years, and simulate the 10 years of updating.
--------------------------
I'm aware that the two accounts will probably differ in value when it's time to update them, but that is not a reason to duplicate all four stocks in each account.

One consideration is that I'll be adding money to the Roth IRA in 1999, and that addition would put them out of balance anyway. Furthermore, the traditional IRA will receive a rollover (from an account not currently invested in stocks at all) later this year.

In any case, even without those additions, equalizing the dollar amounts of the investments would probably require duplicating only one stock.

More to the point, however, is that the FF isn't a magic formula: the investor's following of the system isn't what causes the stocks to behave the way they do.

I've mentioned before that if a stock that is being carried over is only slightly out of balance, that is, by a share or two, I probably won't adjust it at all. If I happen to invest unequal amounts -- and, because the share prices weren't evenly divisible into the funds available, I *started* with slightly unequal investments -- the performance of the portfolio will vary from the model, but it won't affect the performance of the individual stocks.It may be a bit worse. Or a bit better.
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1)How do I purchase 4 equal dollar amounts (or close to equal) of the four foolish stocks when I don't know the price my stock purchase will be made at when the market opens?>>>>

look up the price of each stock, divide 492 by this number, if its close buy three stocks at market, then buy the 4th the next day -- that's the way I handled it. If it's REALLY close, try a limit order, but take into account Ameritrade charges more. Make the cheapest stock your last purchase so you don't end up wth yet another commission or a lot of uncommitted cash lying about...

(2) ...can I pay the Ameritrade $8 charge per trade outside my ROTH IRA...if not I then have $492 per foolish stock...right?>>>>

Correcto mundo fellow Fool, no margin and expenses, i.e., commissions have to happen in the IRA

.DO I just leave it until one year later I add $2K more and then re-allocate my Foolish Four???>>>

Until you accumulate significant amounts, yes. Dividends are presently a bit more than 2% -- on $2k that's about $40.00. Leftover cash ($22.00 in my case) will still draw MM rate I believe.

my one year anniversary will always be 3 and 1/2 months into the year...before I add another $2000 to the foolish four....and I will be loosing 3and1/2 months of...>>>

The FF doesn't work that way .. your port. is constituted as to the makeup of the model you follow (see the Workshop) on the day you make your purchase. The listed ports are merely the models this 'site tracks for informational purposes
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my one year anniversary will always be 3 and 1/2 months into the year...before I add another $2000 to
the foolish four....and I will be loosing 3and1/2 months of...>>>

The FF doesn't work that way .. your port. is constituted as to the makeup of the model you follow (see the Workshop) on the day you make your purchase. The listed ports are merely the models this 'site
tracks for informational purposes

What I meant here was that I lose the compounding power of another three months of sheltered funds working for me as I will have to wait 3 and 1/2 months with my IRA funds sitting on the sidlines until my foolish four anniversary dictates that I put in another 2K.
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Learner2,

<<What I meant here was that I lose the compounding power of another three months of sheltered funds working for me as I will have to wait 3 and 1/2 months with my IRA funds sitting on the sidlines until my foolish four anniversary dictates that I put in another 2K.>>

I think you're making too big of a deal about three to four month's here. Your $2K will earn money market rates until the anniversary date hits, so it's not just sitting on the sidelines. Look at it this way. For 20 to 30 years you will have $2K that will earn just 5% for four months and 15% for eight. On a compounded basis that comes to 12.3% for the year.

If it really and truly bothers you, then adjust your anniversary date to coincide with your $2K first of the year deposit or run multiple portfolios. Otherwise, it ain't a big deal and you should just fergiddabowdit.

Just this Fool's opinion FWIW.

Regards….Pixy
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Interesting thread. Here are a couple of clarifications.

1. In the first message in this thread Learner2 mentions keeping his rollover Roth IRA separate from his non-rollover Roth IRA. When Congress completes work on technical corrections (perhaps in a couple of weeks) it should be clear that rollover and non-rollover Roth IRAs can be combined with no ill effects. Doing so will eliminate some of the concerns discussed in this thread relating to replicating the Foolish Four portfolio in multiple IRAs.

2. Learner2 asked whether he could pay the trading commissions outside the IRA. One response said no and another seemed to say yes. The answer is that if you do this you are considered to be making an additional contribution to your IRA in the amount of the commission. And since you've already contributed the maximum, this would be an "excess contribution" that would result in penalties if not corrected. There's a page on my web site dealing with correction of excess contributions to Roth IRAs, but the better course is to avoid making them in the first place.

KAT in Chicagoland
http://www.fairmark.com
Tax Guide for Investors
Includes a complete guide to Roth IRAs
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