I’ve been blabbing on about finances for a little bit now and up to this point I haven’t been very aggressive about saving for retirement. Saving for retirement is good and dandy, but right now is the most important time for us to put away money (if you are wondering why see this post on compound interest). Both of us have a little money in SIMPLE IRAs, I pay 5% into LACERA (county pension) and get 3% matched going into a 457(b). Not enough to meet our goals, but definitely better than 0%.
For over a year now I’ve been talking about starting a Roth IRA and never did. With April 15th just a few days away, I went ahead and started a Roth IRA at Vanguard. What’s important about April 15th besides taxes being due? It’s the last day to make IRA contributions for 2007. I maxed out my 2007 contributions which leaves me another year to work towards maxing out my 2008 contributions.
My entire investment strategy revolves around starting young and investing for the long term (30 years). I also wanted a strategy that would require very little effort on my part. I knew index funds were the way to go, but there are ton out there and needed to narrow it down. I was also taking asset allocation and fees into consideration.
After some research I found Vanguard’s Target Retirement Funds. They are funds of funds and include indexes of US and international markets along with bonds. The 2045 Retirement Fund has an asset allocation of about 90% stocks and 10% bonds right now and will gradually reverse those numbers as 2045 grows closer. Since I’m starting young I’m comfortable with an aggressive allocation and the automatic reallocation will save me time down the road. The expense ratio is a low .25% which can really impact savings over the long term.
Opening the account was really easy and everything is done online. Funds were transferred straight out of my checking account and I avoided a $20 annual maintenance fee by opting for paperless statements. I also like the fact that Vanguard is client-owned and is there to serve the investor, not outside shareholders. You’ll never see TV ads for Vanguard since that’s money coming out of their investors pockets. With $1.3 trillion in holdings they must be doing something right.
My strategy will probably evolve as our income and tax situation change, but the essential idea is to put away a steady amount over the years in tax advantaged accounts and let compound interest do its job.