Archives for December 2004

I have decided upon Vanguard for my Roth IRA Brokerage. My decision was based upon the following:
1) I want to invest solely in mutual funds, specifically index mutual funds.
2) I want a large selection of no-transaction fee, no-load mutual funds with very low expense ratios.
3) I want minimal fees, especially tricky or hidden ones, from the brokerage.
4) I want it online, with a good web interface.

These points narrowed it down to:
a) Fidelity, a mutual fund behemoth which has a nice selection of in-house funds with expense ratios as low as 0.10%. However, the minimums for those funds are $10,000 each. It also has a great web interface, as I use it for my 401k account.
b) Vanguard, which was a leader in the index fund movement and has an enormous selction, with very low expense ratios. I have no idea what the web interface is like, however.
c) Scottrade, a smaller company which currently has no transaction fees for ANY of it’s mutual funds. However, I have heard through the grapevine that it may start charging soon, as they are currently losing money on each transaction doing this. (Update: They now charge for no-load mutual fund transactions)

Since I already have my 401k at Fidelity and am already invested in many of their mutual funds, and I want to keep my Roth IRA somewhere stable for the long run, I leaned toward Vanguard. After some more research, I saw that many of Fidelity’s index funds have $10,000 minimums, even for retirement accounts. Unfortunately, the max for 2004 IRA contributions is $3k, 2005 is $4k. Thus, Vanguard wins out.

Vanguard has an IRA custodial fee of $10 a year for each fund account having a balance of less than $2,500 to $5,000. I plan to have at least $5,000 total, so I may be exempt from that. Many of it’s funds also have a quarterly $2.50 account maintenance fee for account with less than $5,000 to $10,000. Regarding the account maintenance fee, they say it “is paid directly to the fund and therefore is not considered a load”. So I guess some the $10/year comes back to me, as it pays into the fund. Still, I would be subject to this for at least a year. Not ideal, but it’s better than less my cash sit and shrink from inflation, not to mention $10 is less than one stock trade at most places. So I’m off to Vanguard to open an IRA…

As you may have noticed, my portfolio is defintely cash-heavy. There are two mains reasons for this:
1) I am currently renting and am saving up for a downpayment for a house in the next 2-3 years, and would like to keep the money somewhat liquid.
2) I don’t know that to do with it. I don’t want to be investing in the current trendy idea, and have it bomb right before I find the perfect house. Still…

…earning 2% interest is not going to help my downpayment money grow. I heard you can withdraw money from a Roth IRA to pay for your first home, but after doing some research, I found out that you must wait five years first. I’d like to think I’d be owning my own house by then… However, putting money into a Roth isn’t a bad idea anyways. So, I have decided to fund a Roth IRA. I can put in $3,000 for 2004 and $4,000 for 2005 for both my wife and myself each, as we satisfy the income restrictions this year and the next. Either it stays in there as a great retirement vehicle, or I can pull it out to pay for a house.

Next step: Which brokerage firm to use, and where to allocate my assets – stocks/bonds/REITs/pork futures?