Investing In My Roth IRA

Posted on September 30, 2007 by Eric
Filed Under Investing, Retirement

Is this enough to retire on? Recently, I talked about how I have switched my Roth IRA from the insurance company to my brokerage account. I started doing some research on where I was going to invest things, and came to the conclusion that I would be investing all of it in Vanguard Exchange Traded Funds after doing some math. The Vanguard ETFs have the lowest expense rations, even lower than their mutual funds, and offer a reasonably diverse portfolio.

There is only one problem, and that is brokerage fees. When I started calculating if ETFs or Mutual Funds would be better, ETFs won out easily for large investments, but with the smaller investments (like $1000 or less), if I had to figure in the brokerage fee, the mutual funds came out ahead. There weren’t huge differences, but because this money is going to be invested for 25 or more years, I wanted to ensure that I would lose as little as possible to expenses and fees.

So, I’ve been taking some time to find out the best place to put my Roth IRA (I’m moving it again I think - I only have so many free trades with my current broker).

I’ve been debating opening the Roth IRA at Zecco.com because there are free trades. I’m just not sure it’s going to make sense though. There appears to be a fee charged on Roth IRA accounts from what I can tell, and I might need to do a bit more research before I consider this option. The fee is likely to eat into my savings one way or another.

I’ve also been looking at opening up a Vanguard account directly because, at least right now, I think I’m going to stick only to Vanguard funds. This might change in the future, when I may want to diversify, but for now, after reading The Four Pillars of Investing: Lessons for Building a Winning Portfolio, I think I’ll stick with Vanguard Index funds. But because I don’t have a large amount of money, I’m going to be hit with fees again. Even if I stick with mutual funds here, unless I have $3000 in each fund, there is another fee I’ll be charged at Vanguard.

It seems the more I learn, I find there is even more to learn. Investing can seem very straightforward one second, and then incredibly complex the next. In the end, it’s just a matter of sitting down, figuring out all of your costs and fees, properly diversifying, determining your acceptable level of risk, and then generally just letting your money sit and earn until you need it.

I feel like I’m back to square one today. I had convinced myself that my Ameritrade was not the best option here, and I might still be right, but the other two options that seemed to be better have more going on than I expected. I’m going to be taking some more time to do the math today, and if I discover anything else interesting, I’ll post it. In the meantime, my Roth is at least making something in the money market account, but it’s not going to make as much as I want if I let it sit there very long.

Photo by CheesePicklesCheese

Comments

7 Responses to “Investing In My Roth IRA”

speedy on September 30th, 2007 3:35 pm

With Sharebuilder and with directly-held Vanguard funds (at least when I had them several years ago), you will have a yearly fee for IRAs. But you can elect to pay this fee directly, and not have it come out of the money in the IRA account. Seems like my ShareBuilder fee was around $25 per year, and I think the Vanguard fees were $10/year per fund when I held them.

In ShareBuilder, the per-trade fee does come out of the account. I had asked before I opened the account and I was told by the customer service rep that the per-trade fee does not reduce the amount in my IRA, but when I looked at my statement, I discovered this was not the case. I guess asking ahead of time doesn’t help if the person you are talking to does not know the correct answer!

So I have decided to limit the number of stock purchases per year to keep my costs low, and I will be investing more of my money elsewhere!
Eric on September 30th, 2007 4:28 pm

Speedy - thanks for the information on Shraebuilder. I was considering looking at them too, but I knew there was still a small fee for each ETF purchase. And if the fees come out of the account, it’s that much less desirable for me right now. I have the option to move, so I am considering all my alternatives and trying to make sure that I make the smartest financial decision.

That’s good to know that you can pay the fee outside the account. That can make a big difference! Thank you very much for the information!
Stock Market Investing on November 12th, 2007 1:10 pm

I have a Fidelity Roth IRA, and I completely understand your pain about the trading fees. It costs $20 a trade, so I only invest in 1 to 2 stocks to keep the fees at bay.

Zecco is a good choice if you’re seeking a better deal. ETF trades are free, but mutual funds at Zecco can get very expensive if you have a trader’s mentality.

I say stick with the ETFs, and go passive.
Eric on November 14th, 2007 7:52 pm

@Stock Market Investing - I’ve been considering Zecco as an option. I don’t trade often, and when I do it’s generally buy ETFs.
Make Friends, Earn Money on May 31st, 2008 11:12 am

trading is always a difficult skill to master and like you I find that just when I think I’ve figured out how best to proceed, I find more stuff to learn. Stick with it, hope it’s progressing well
Cheryl(new comment) on July 29th, 2008 1:16 pm

Help me! I opened a TD Ameritrade Roth IRA and have no clue how to do “trades”. I think I got into something I cannot handle. I assumed it would be like a 401k, I deposit money and leave it to grow under certain investment elections. However, I’m not a stock broker and I have no clue how to trade. Ameritrade will not assist me. What should I do?
Tatiana(new comment) on October 10th, 2008 12:17 pm

Searched investing in msn but for some reason found this page.great info