New Investor - Which broker to choose?

[Guest Newcomer]

Hi -

I'm 24 and I want to start putting money into an IRA Roth, but not sure which broker to go with. From the looks of the boards here, people seem to think very highly of Vanguard. May I ask why?

I plan on doing a lot of research on which broker to choose, but it would be a great jump start if I could hear why people tend to go to certain brokers. I was thinking of Fidelity or ING (If ING even offers a Roth) simply because I had heard of them previously. I do know that I want low fees, some help and guidance (but not a complete brokerage firm, like Merrill Lynch), a diversity of funds, and a very good website that helps me understand clearly what is going on and where I stand in regards to my future.

As for the fund to choose, I'm hearing that I should not go with a Tax-Exempt fund or an International fund, but stick to more stable (more conservative) funds. Since I am younger, I should also stay with the fund chosen instead of moving around from fund to fund. Anything else?

Also, do you suggest putting in more than the minimum each year - or just keeping it at $3000 (or whatever the minimum is)? If I make 45k a year, am single (but soon to be married in a year or two), and have $8,000 saved up for whatever, (but still have college loans, rent, bills, etc. each month), what do you recommend?

Any other great words of wisdom? Thank you so very much! Much appreciated.

Jessica

[Guest Mr.P]

Hi,

First, I'm no expert. I'm a relatively new(3 years) investor similar to you. But since nobody else has shared any information, I figured I'd offer my experience.

I use Fidelity. They have a large variety of funds and do not charge transaction fees if you buy within the Fidelity family. As for which fund I selected, they have an offering called the Fidelity Freedom Funds which are Asset Allocation Funds. Basically, the funds adjust their asset allocation according to the year you want to retire. They have the Freedom 2010, 2015, 2020,etc. The assumption is that you want to invest more aggressively the further you are from retirement and gradually lower your risk as you become closer to retirement age. The Freedom funds do that for you. To me, it's a nice choice because I'm not a professional money manager nor have the time/desire to really actively manage my investments. I do keep close tabs on the results obviously.

Fidelity Funds aside, I have found the personalization and navigation on their website very intuitive. Also, if you are young and used to not having to talk to people, you can basically open up all of your accounts online in 10-20 minutes. They have online chats with representatives as well. I used that for the first time last night trying to figure out my IRA situation that I posted on this board.

I'm sure I sound like a schill for Fidelity. I also have an ING account for my company sponsored 401k and my experience with ING has been very good as well. In addition, I used Etrade for 2-3 years and recently moved my money out of that account, not as much because I didn't like Etrade(i didn't love it though), but that it was easier to consolidate my accounts with Fidelity.

Anyhow, I hope you find this information somewhat useful. Good luck.

Hi -

I'm 24 and I want to start putting money into an IRA Roth, but not sure which broker to go with. From the looks of the boards here, people seem to think very highly of Vanguard. May I ask why?

I plan on doing a lot of research on which broker to choose, but it would be a great jump start if I could hear why people tend to go to certain brokers. I was thinking of Fidelity or ING (If ING even offers a Roth) simply because I had heard of them previously. I do know that I want low fees, some help and guidance (but not a complete brokerage firm, like Merrill Lynch), a diversity of funds, and a very good website that helps me understand clearly what is going on and where I stand in regards to my future.

As for the fund to choose, I'm hearing that I should not go with a Tax-Exempt fund or an International fund, but stick to more stable (more conservative) funds. Since I am younger, I should also stay with the fund chosen instead of moving around from fund to fund. Anything else?

Also, do you suggest putting in more than the minimum each year - or just keeping it at $3000 (or whatever the minimum is)? If I make 45k a year, am single (but soon to be married in a year or two), and have $8,000 saved up for whatever, (but still have college loans, rent, bills, etc. each month), what do you recommend?

Any other great words of wisdom? Thank you so very much! Much appreciated.

Jessica

[papogi]

I would suggest performing a search on this message board for prior threads concerning basics of investing, starting up a Roth IRA, selecting a broker and/or IRA custodian, etc. There are very good posts out there by John G, Appleby, among many others, that will answer your questions.

[Guest Newcomer]

Thank you!

Jessica

[John G]

You search will find a lot of posts by me on this topic of choosing a custodian.

Who to pick? There are many fine choices - banks, mutual funds and brokerages. If you are computer savy, you may want to select from those that are low cost internet companies. Some folks want a local "branch office", all of your local banks, plus companies like Etrade, Scotrade, Fidelity and Schwab have many offices.... Vanguard does not. You may want to choose a custodian because of the types of investments they offer.... but this seems to be less a factor now as almost all custodians offer more choices than you really want to think about. One caveat, there is a big difference between NO LOAD (no commission) mutual funds and loaded funds. Not all custodians offer no load options. Annual fees should not be the most important factor - but you will find a range from zero (often the internet firms with email notices) to $50 or more (typically full service brokerages). Annual fees can be waived upon request at some locations and are frequently waived if you exceed some balance threshold or have other assets with them.

Why does Vanguard get mentioned so often? They have been the leaders in index mutual funds, and the company has a spartan approach to costs which results in ultra low annual expenses. They operate via 800 phone numbers, regular mail and the internet. The index concept says aim for overall market performance and keep the annual expenses low giving you a very attractive net. It is a system that works for many folks, especially since they spend less time monitoring their investments.

Most new investors start with mutual funds. Reasons: instant diversification, $$ amount rather than share number purchases, less research time needed, and less monitoring effort. There are over 10,000 mutual funds and perhaps 1/2 of these are NO LOAD. You only need 1 fund initially - either an index fund or a broad based stock fund. At your age, I would lean towards growth stock funds, but you need to think about what works for you and your comfort level with risks/volatility.

DO NOT SWITCH FUNDS OFTEN ! You don't want to fall into the trap of chasing last years winners. As a beginner, pick a fund that has a reasonable track record over 10 years. Past results are no guarentee of future performance, but this approach is likely to get you a steady performer and that builds new investor confidence. Maybe a year or two down the road, you will want to pick a second fund from the same custodian.

TAX EXEMPT and INTERNATIONAL - Avoid tax exempt anything because a ROTH is already tax exempt... no sense accepting the typical lower annual return of exempt bonds. International is to be avoided primarily by folks just getting started because you need to know more to invest wisely. You can live your whole life and never invest outside the USA and do just fine.

Money to deploy - If you worked and made over $4,000 last year then you should start by fulling funding your 2005 Roth before April 15 2006. You can also add the 2006 contribution. If you find that you can invest more than start building up a cash reserve fund... 15 to 20k would be a reasonable target. Beyond that - you can start thinking about starting a taxable brokerage/fund account. Long term capital gains are currently taxed at low rates compared with other income. Do NOT repay your college loans early as they typically have low interest rates. DO AVOID credit card debt - first because this shows that you are living beyond your means and second because the credit card interest rates are a big drain on your resources.

Post again if I missed anything or you have additional questions.

[Guest Newcomer]

Thank you, John G. Your previous posts have also been extremely informative. This is very helpful and will def. get me started in the right direction with more confidence. This is a great community website; so glad I came across this!

Jessica