Hi! I have Roth IRA and inside it I’ve invested in VFIFX but also added VTI, VNQ, VOO should I open up separate a brokerage account and move those ETFs into that? Or all investments should stay in Roth account to grow tax free? Or do I roll everything over later on? Thank you🙏🏼
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Hey Freedom!
I think you’re kind of asking two questions:
- Into which accounts should I invest so I can maximize my tax break?
- What should I be investing in inside of those accounts?
To answer #1, I’d definitely max out the contribution limit to your Roth IRA ($6,000 in 2020) before investing outside of your Roth IRA. That’s a use it or lose it limit that’s one of the best deals in taxes.
To answer #2, it’s good to understand what you’re buying. VTI is the total US stock market. VOO is the S&P 500 (500 biggest US companies). Those two are ALMOST identical because 80% of VTI IS VOO. And the remaining 20% of all the small companies generally correlates pretty closely to the big ones. VFIFX is a target date index fund, and guess what’s inside of that: More big US companies! So you technically own Microsoft stock (for example) inside of ALL THREE of VFIFX, VTI, and VOO. That’s not BAD, perse, but it does add added complexity without any expected benefit. I’m actually a big fan of dumping EVERYTHING into a target date index fund like VFIFX since it already has all that other stuff. Here’s a video that might help explain:
ONE SIDE NOTE I didn’t mention yet is VNQ. That is a Vanguard Real Estate Index Fund. It’s not straight up overlap like the other ones are. Real estate index funds generally also go up a lot in value over long periods of time and they can provide some diversification (although they generally correlate pretty close to the market). So, while I think putting 100% in VFIFX is a good strategy, if you wanted to add VNQ for some diversity in another growth asset class, I think that would be great. I personally allocate some of my portfolio to a real estate index fund (and generally the rest to a TDIF).
So TL;DR: I’d put all the money in your Roth IRA and invest it all in VFIFX, and maybe 10-20% in VNQ.
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You are awesome! That was very helpful. Thank you for breaking down and giving the details😊
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Hello,
Can I please get your input on a few things in my retirement plan.
Please let me know if I should change anything:
-Have 401k through work. Matched
-Have Roth IRA (Vanguard)
-I bought TDIF 2050, VTI, VNQ, and VYM (bought these ETFs when I didn’t have enough money to invest since each index requires initial $3000 with vanguard:( …not sure …should I sell and move into an Index Fund or keep these and reinvent in these each month also?
maxed out my Roth IRA … $600 going towards my TDIF and buying extra shares of my existing ETFs( am I doing this correctly??)
my questions are …
how long should I max out my Roth to see decent amount of growth ?
Can I stop investing sometime in the future and money will still grow? What’s a good number of years?
Also those ETFs I have i want to switch to switch to one index fund in addition to my TDIF 2050
Which would index fund would you recommend? Thank you!!
Hey @Freedom!
Check out the investment growth calculator to see how your investments are likely to grow over time. Try using 7% (without inflation checked) as the growth rate:
That doesn’t specifically model “stopping” investing (other than retirement) but it gives you a good idea of the pace you’re on.
Regarding selling your ETFs and putting it all in the TDIF. BROAD STROKES, it doesn’t really matter. They’re both doing about the same thing. If you want the simplicity/peace of mind of having everything cleanly in the “all in one” solution, go for it. If you like the idea of keeping them separate to watch how they behave, that works too. If you’re making those trades inside an IRA or 401k there won’t be any tax implications from switching.
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