So, I am 27 and I really want to start investing in my retirement. I am able to put a few hundred away in savings every month and now my savings is at a level that I feel is good as an emergency fund (no income for 2-4 months). That said, I do not have the money to pay the minimum for something like Vanguard's Total stock index fund. I am also interested in starting a Roth IRA. I would like to get on this quick to take advantage of this discount period.
Should I keep saving until I can jump into an Index fund, or start now with a Roth IRA?
If you want to start with lower initial investments and work in your contributions, you have a few options:
- Open a Vanguard Roth IRA brokerage. You can then pick a couple
no-commission broad index ETFs (minimum purchase is one share) - keep in mind that you are still required to start with $3000 into your settlement fund (basically your money market or cash holdings within the account), but you don't have to invest it all at once if you go with ETFs. Most Vanguard stock/index funds have a $3000+ minimum initial investment, but there's the
STAR fund which requires $1000 to open. The STAR fund is a "fund of funds", giving some broad exposure to stocks but also maintaining a relatively high percentage of bonds (~62% stocks, 25% bonds, 13% other reserves). As someone else mentioned they also have their target retirement funds with lower minimums to open. As you contribute and build up the value of your holdings, you can look into other options for mutual funds (or just continue use Vanguard's ETFs if you start that way).
- Open a
Schwab Roth IRA brokerage. Schwab also offers some
no-commission ETFs, both their own and those provided by other investment companies. One nice thing about Schwab is that their own mutual funds have $100 minimum initial investments - you could start with something like their S&P index (
SWPPX) then make regular dollar cost averaged contributions over time. Schwab's mutual funds have pretty low expense ratios, but I don't know how they stack up in terms of performance against similar funds. They also offer various mutual funds from other companies, some of which have no fee and no load, but those typically require higher minimums ($1000 to open, $500 to add).
- Open a
Fidelity Roth IRA brokerage. Similar as the above -
they offer their own ETFs as well as iShares ETFs commission-free (but you pay a fee if you sell commission-free ETFs within 30 days of buying those shares - shouldn't matter since you're thinking longer term and would sell/exchange/rebalance maybe 1-2 times per year). Fidelity's index/mutual funds seem to mostly have $2500 minimum investments even in IRA accounts, but again you'd have those plus some other no-fee, no-load non-Fidelity funds available down the road as you build up your holdings and seek to diversify/reallocate. And checking further, the brokerage also requires
$2500 to open.
This is by no means comprehensive, but these might cover most of what you're generally seeking. Vanguard seems popular for starting out due to their many index fund/ETF options as well as low expense ratios. Schwab's mutual funds have really low minimum initial investments, and they have some commission-free ETFs as well. Fidelity's biggest advantage is probably offering commission-free ETFs from the relatively popular iShares. As mentioned above Vanguard will still require $3000 to open the brokerage account (Fidelity $2500). If that's not feasible then Schwab might be a good alternative, since they only require $1000 to open the brokerage itself (plus $100 minimums to open Schwab mutual funds and various no-fee, no-minimum ETFs).
For example, if you wanted to start with
VTMSX but don't want to go all in with $3000 at once, the ETF equivalent would be
VTI. You can see how their performance is identical since they're essentially the same index - one version is traded as a mutual fund, the other as an ETF.
If you went with Schwab, they have a total stock market index fund (
SWTSX). Performance compared to VTSMX is nearly the same, but not quite.
