M is for Money

I finally did it! After years of stalling I finally opened a Roth IRA this week with Vanguard. Saving for retirement was never a priority to me, I had debt to pay off and a lifestyle to afford. But I’ve tackled most of those demons and I’m now making up for lost time. This means ramping up my tax advantaged retirement plan at work, my 401k, and adding a Roth IRA to the mix. So what is it like to open a Roth IRA?

Saving up the Initial Investment

I think many people put off investing in mutual funds because of the minimum investment required. If you don’t have several thousand in the bank and want to start investing today, I recommend T Rowe Price. They will waive the initial investment requirement as long as you sign up for monthly automatic investing. Vanguard, on the other hand, absolutely requires a minimum $3000 initial investment. There are only two ways around this hurdle – buy a Vanguard ETF via a brokerage account or start with their “STAR” fund, which has a lower minimum investment.

I’ve chosen the latter route because I do not have $3000 to invest right now. Instead I’ve been saving up $100 here and there since the beginning of the year in an online savings account. The $1200 I have saved is more than enough to meet the fund’s $1000 minimum investment. I plan to start monthly automatic investing with Vanguard as well (already in the budget) and later, once I’ve amassed the necessary $3000, I will move over to one of their fabled index funds.

What You Need to Open an Account

Other than the initial investment, there is very little you need to open an account. Make sure you have the bank routing number and account number for the account holding your initial investment. Other than that all they require is your personal information - like name, address and Social Security number.

You will need to pick investment(s) as well, so take the time to do your research beforehand. You should understand their range of funds and build a portfolio based on your goals. This process doesn’t happen overnight and I’ve found that hasty investment decisions lead to regrets later. For now Vanguard’s limitations are dictating my investment moves, the STAR fund is certainly not my first choice. But I am tired of leaving this money in a savings account earning minimal interest and I like the fund’s lower barrier to entry. I will dollar cost average each month until I have enough to switch to one of my preferred low cost index funds.

Need to Know Info

Vanguard prides itself on its low management fees, primarily because they specialize in index funds, which have lower expenses. But they do charge various account fees on small balance investors – unless you sign up for electronic updates and statements. This is very simple when you sign up online so don’t neglect this important step. Otherwise the regular fees will take a big bite out of your balance. Vanguard, like most mutual fund companies, offers automatic investment. But nowhere did this option appear during sign up, you must go to account profile after creating your account to add this feature. If you’ve been thinking about setting up a retirement account, now is the time to do it. I waited far too long to begin this important step to financial freedom. At a company like Vanguard, it only takes a few minutes to start down that path.


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