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I also posted this in the Retirement Investing Board...

I had a meeting today with a financial planner to discuss opening a Roth IRA. The company I happen to work for is (partly) a financial services company so our accounts and any financial advice are free, and I'm starting to take advantage of that.

Currently, I'm deferring 10% of my pay to a 401k offered by the company. There is a company match in place for 4% of my salary, but that will not vest for a while, and I will probably never see it since I think I'll be finding another job at some point...

I have funded a $7500 emergency fund. I have $100 a month going into AIVSX. I want to add a Roth IRA to balance the pre-tax 401k with some after-tax money set aside for retirement. At this point in my life I'm not sure if I'll be in a higher or lower tax bracket at retirement. I'm 27, so I'm still a long way off.

The planner seemed interested in WM Group of Funds - Strategic Growth Portfolio, specifically the B shares (since they do not have an up-front load fee. I'm not sure if I'm convinced.

My gut is telling me I'd be better off with an index fund like VFINX... which has a lower expense and instead of trying to beat the S&P 500, it *is* the S&P 500.

As an employee, I have no account maintenance fees, and there's a good chance that even if I stop working for the company, they *might* not have anything in place to recognize this fact, and so they may not begin charging me the fee (which would be $35 a year for the Roth IRA).

VFINX would not be available through this Roth IRA. Would I have to find a non-proprietary index fund that works like VFINX?

Any thoughts would be most appreciated.

hbomb
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Hbomb:

There are plenty of places to open an IRA with no fees. I use TIAA-CREF. If you do automatic monthly contributions you pay nothing. You can also buy shares online the same day without paying any fees either. Just enter you purchase before the market closes.

Their Equity Index fund is great (in my opinion) - TCEIX.

http://quicktake.morningstar.com/Fund/Snapshot.asp?Country=USA&Symbol=TCEIX&hsection=

Expenses are 0.26%. It tracks the Russell 3000 rather then the S&P.

Splotto
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1.) You are not expecting to stay are your current job long enough to vest the employer contributions in your 401K.

2.) The IRA is only guaranteed to be free as long as you are an employee. You will incur a rollover charge to move it.

3.) Vanguard would charge $2.50 a quarter until the balance in the VFINX fund is greater than $10,000 and an annual $10 fee until the IRA balance is greater than $5,000. No front end or back fees on purchase/sells.

4.) B shares have no front end fee but have higher annual fees than class A and depending on the time they are held may have back end fees. Do they convert to class A shares after a specific period of time or will you always be paying the higher annual fees?

Unless as an employee you are prevented from opening an IRA else where I would pay Vanguard the $10-$20 a year.

Debra
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VFINX is far better than WM Group of Funds - Strategic Growth Portfolio, specifically the B shares. B Shares, according to their site, have a 5% deferred sales charge and fees of 1.13% per year. Avoid at all costs. VTSMX is a better choice than VFINX IMO. Personally I wouldn't keep such a high cash emergency fund unless I had high fixed expenses and/or an unstable job.

>>Would I have to find a non-proprietary index fund that works like VFINX?

Unsure what you mean by this; all funds are proprietary, but I would simply open the Roth at Vanguard directly and not worry too much about their small fees, which will go away once you reach their thresholds.

Nick


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I'm with everyone else, but I'll go a step further in finding a way to reduce fees.

Set up your Roth at Scottrade. Buy your Vanguard fund through them. This is a no fee IRA. As long as you hold the fund for more than 90 days you will incur no transaction fee. Plus if you become more adventurous you can buy individual stocks there as well. There are a wealth of fund families at Scottrade other than Vanguard.

http://www.scottrade.com

Don't let these people take your heard earned and harder saved money. They have no right to it. Those fees can eat up a huge chunk of your return. They come out if the fund does well or not. Higher fees do NOT equal a higher return.

Before you do anything I think you need to do more research for yourself. Your average CFP working at a finance company is there to sell you something not to help. Get the money into the IRA and park it in a money market until you have a better feel for exactly what you want to do. A lot of people reccomend reading Mutual Funds for Dummies. I'd also reccomend taking a look at the discussion boards on Morninstar.com. They know their stuff over there.

http://socialize.morningstar.com/newsocialize/asp/coverpage.asp?topnav=conversations

On TMF I'd suggest taking a look at the Retire Early Homepage board. They know their stuff there too.

http://boards.fool.com/Messages.asp?bid=112992

I suggest you take the time and do some reading. You can do just as good a job managing your finances as a "expert" can.

billyturtle
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hbomb,

I forgot to cheer you on. You're doing great for 27. You already have a good safety net set up. How many months can you live on that? I'm trying to get up to 1 month of expenses. Where is that money right now? How much interet are you earning? (Just looking for ways to maximize your money, and maybe fishing for an ING referal....)

:)

I assume you have no credit card debt. Good. I paid all mine off with my tax return.

You're already saving a good amount. Another $250 will go a long way 30 years from now when you retire.

You're doing a great job. You should be proud of yourself.

billyturtle
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>>Set up your Roth at Scottrade

I don't have an account there, but they seem like an excellent choice...I only worry they're too good to be true (i.e. losing money with their current fee structure)


>>Your average CFP working at a finance company is there to sell you something not to help.

That's so true. I'm in the process of becoming one...hanging out on some financial planner message boards, I'm surprised at how much talk there is of pushing annuities and other commissioned products. It's a world apart from what I want to do. I always thought the CFPs were supposed to be the good guys- the opposite of your typical shady stockbroker.

Nick




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>>Your average CFP working at a finance company is there to sell you something not to help. <<<<

That's so true. I'm in the process of becoming one...hanging out on some financial planner message boards, I'm surprised at how much talk there is of pushing annuities and other commissioned products. It's a world apart from what I want to do. I always thought the CFPs were supposed to be the good guys- the opposite of your typical shady stockbroker.


Fee based or independant CFPs seem to have a better reputation. I have yet to talk to one, mostly beccause I am in control of my meager (at the moment) finances.

I'd also only trust someone who had come highly reccomended from someone I trust.

The section in The Millionaire Next Door explains the process of finding one in detail.

Best of luck with the CFP classes. There are some bad apples out there, but that doesn't mean you won't be able to help decent people make good decisions with their money.

billyturtle
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Thanks to everyone who has posted with great suggestions. I plan on taking a good look at the resources that everyone has suggested so far.

For the sake of information, I'll answer some of the questions. $5,000 of my efund is sitting and (sort of) growing at ING... the rest of it fills out my minimum balance requirement at Wachovia/First Union, where I have checking, savings, and the investment account where I deposit $100 each month into AIVSX. The efund should last me six months or more.

I have no credit card debt--nothing that I can't pay off every month before charged interest. I do have about $5,000 left in a student loan, to which $200-$350 goes each month.

I consider myself pretty lucky in the moment--I have a very low rent due to the fact I'm sharing a three-bedroom apartment with three other people, and I have no need for a car, therefore no car or auto insurance payments. However, our apartment lease is up for renewal in a few months and I don't think we'll be keeping the same arrangement.

Thanks again for everyone's help...

hbomb


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Hbomb,

It sounds like you're really on top of things. Two thumbs up. Student loans are my next target. I have about $23k. Yikes!

The only other thing I can suggest is that maybe you could start to move some of the e-fund into savings bonds; I or EE. Maybe $100-250/month from current e-fund.

LBYM is a good thing. If you want more money saving tips and lively friendly debate and dicussion check out the LBYM board.

http://boards.fool.com/Messages.asp?bid=100158

billyturtle
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Amen, billy. I'll repeat what you said for those reading too fast--
"Higher fees do NOT equal a higher return."
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VFINX is far better than WM Group of Funds - Strategic Growth Portfolio, specifically the B shares. B Shares, according to their site, have a 5% deferred sales charge and fees of 1.13% per year. Avoid at all costs. VTSMX is a better choice than VFINX IMO.

I also responded to the similar thread on the Retirement Investing board where I quoted expenses of 2.65% taken from its prospectus. This is a fund of funds and as such picks up allocated expenses from all of the funds it holds as well as an expense of its own. The prospectus indicates the total aggregate expenses are 2.65%.
I would agree that VTSMX is a great single index fund to hold.

Bob
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Bob,

You're right about the total fund expense. This shows just how good fund providers are at hiding their fees. I downloaded their page prospectus at:

http://www.wmgroupoffunds.com/binary/Retail_Prospectus_3-1-03.pdf?id=995531212&redirected=true

and went to the Fees and Expenses section and looked up the "Total Fund Operating Expenses" for this fund, which is 1.13%.

I was naive enough to think this might actually be the fund's total expense. Imagine that.

You were smart enough to keep reading the 96 page document and find another table with a number called the "Aggregate fund expense" which showed the real total expenses, including component funds, of 2.65%.

I wonder what percentage of people who own this fund actually knows the total expenses they're paying. Maybe 1 in 100? And that's just the published fees, which excludes trading costs et al.

Nick
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