Need help with Roth IRA's

[Guest JarG0n]

I am completely new to Roth IRA's and I need help in deciding which of the three funds are best for me. If possible, I'd rather not read through all the dense online material available, because none of it really makes sense to me. All I know is that I need an account that will fund my retirement, since our ever so kind government has imposed yet another heavy TAX on me and the American People, and then gave it a warm and fuzzy name called "Social Security" ( aka wealth redistribution ). Fact is, if I could put what money i'm forking over to politicians with socialist agendas, into my own Roth IRA, i'd be so much better off, but that's another issue I guess.

I'm going through Vanguard.com because it was recommended by Clark Howard. Here are the three stock funds they ( VanGuard ) has narrowed me down to.

Average Annual Total Returns as of 04/30/2002

Name Yield1 Year 5 Year 10 Year

500 Index Fund Inv 1.30% B -12.77% 7.52% 12.13%

Stock Mkt Idx Inv 1.17% B -9.91% 7.76% 11.67%

Growth and Income Inv 0.95% B -11.67% 8.70% 12.71%

Can anyone help ?

Adam

[papogi]

The 500 Index Fund is designed to mimic the Standard and Poor's 500 (S&P 500) index. If you hear one day that the S&P (not the Dow, but they usually mirror each other) is up 2%, your fund is also up 2%. The S&P 500 consists of bigger, well established companies.

The Stock Market Index Fund is designed to mimic the entire market (typically the Wilshire 5000 Index). Many investors like this fund for long term investing since it automatically diversifies you among many investment sectors (large cap, small cap, tech stocks, utility stocks, etc.). It's nice and simple. You're buying an even cross section of the market. The downside is that if you want to increase your exposure to small cap stocks, you can't do it in this fund. Again, it's an unalterable cross section.

The Growth and Income Fund invests in stocks that are "poised for potential growth" but also invests in stocks with above average dividend yields, hence the "income" part of its name. Dividend yields are pretty low these days, so total return on most growth and income funds out there tend to simply mirror the major indexes.

Without knowing more details, I would opt for the Total Stock Market Fund, but my inclination is minor. Over the long term, all three of these funds will probably end up with really similar performance results.

[John G]

You don't get a free pass with investing, as your assets grow you will need to spend more time and understand your options, the rules that effect you, and the focus of funds you a choosing. Over the long haul, if you minimize your personal effort you significantly increase your risk of making mistakes. If you don't understand investing, you are more likely to get nervous about market swings and exit at the lows and buy in at the highs - which is exactly the opposite of what you want to do. It is your money after all, so I would pay attention to investment choices.

All that said.... when you are just getting started, you just don't have a lot of assets set aside. So, for the first 5-10 years you can pick one good general stock fund and just add the next years contribution. Keep this going until you see some serious assets when you may want to consider splitting your IRA into two funds.

Vanguard is a wise choice because of their low operating expenses. S&P500 vs Total Market - they both would do the job. You get significant diversification. The expenses are very low because these funds are driven by computer buy/sell decisions. Fewer trips to see companies. Less analyst bias.

Good luck.