Building wealth with Compound Interest
updated 11 months, 1 week ago 9Members · 20
Posts At 35, I think I am a little late but better late than never. I’d like to start an account and contribute a monthly contribution to it (in addition to my 401k). I have a few ideas but would like to get the basics right at least. So here are the questions.
1. Would a Roth IRA be a good account for this?
2. Would an ETF like https://investor.vanguard.com/mutual-funds/profile/overview/vrnix be a good bet? Any other recommendations?
3. Do I just keep purchasing this ETF every month for whatever I plan to invest monthly?
If not me, I am hoping my next generation will start a millionaire.
Thanks!!
Dont worry about your age, its about starting and sticking with it!
1) Yes a Roth IRA would be a great place to do this.
2) My opinion right now is to probably do a mix of VOO, VOE, and some VITAX in there. That way you own the S&P 500, some Value stocks, and some Tech stocks. I wouldn’t try to get too cute with buying >5 different ETFs since they all have a lot of overlapping holdings.
3) Yes! Many IRA accounts have the option for automatic buying, hopefully it has that in the brokerage you use. Otherwise, just decide on the % allocations between what you want to buy and buy those amounts every deposit.
Thanks for the insight Justin!
On a related note, say I have $500 to save every month and I have to decide either investing like I mentioned here or make some extra principal payment towards my mortgage(3.5 % APR). I would think that investing is better because over a period of time it would net more returns than what I would save paying extra to the mortgage.
Am I correct?
You’re mathematically correct… But behaviorally it depends. In my opinion, if one is disciplined with investing and holding for the long term and not TOUCHING that money, then it’s better to invest consistently in the stock market.
But significant others, events, temptations, new cars, etc, get in the way and paying down your mortgage locks you into forced savings. So if one isnt super disciplined or has a significant other that will possibly want to touch the money, it might be better to pay down the mortgage. Half-half solutions are good compromises too!
Makes sense. Thanks Justin!
Shishir, never too old and never too late!!! I am 31 and I am starting my investment journey too!!!
I am thinking long term and I am also planning on investing in ETFs for my Roth IRA. I am thinking 50% VTI, 40% VXUS, and 10% VNQ. I can’t invest much yet… just $100 a month. Justin, I would love your input and your opinion if you think I need to change my allocation or ETFs! 🙂
Thanks Vanessa. I too signed for Acorns about a year ago contributing $100 and doing roundup investments. I am going to close that now and do it myself.
I created a Roth IRA in Fidelity yesterday and started with $1000.
Hey Vanessa – I’m personally not a fan of international stocks right now. The rest of the world is going to have a worse fallout from all this than the US. I personally would substitute VXUS for something more US-based software-oriented or value-oriented. No opinions on VNQ.
Congrats on starting! That’s the big win regardless 🙂
I’m at the same boat but holdong my CASH position right now as the market, in my opinion, is priced ‘high’. Actually waiting for @justinoh to call RISK ON! LOL
- i’ve been waiting to be risk-on for weeks now…. I feel like I’m Tom Hanks in Castaway!
I have a fairly similar question, so I’ll reply here.
Like Justin, I’m risk-off right now and holding more cash than usual after selling 20% of my position in $SHOP. If and when the market drops again, I am thinking of investing via ETFs and/or Index Funds, as opposed to my usual individual stock picks, where my individual brokerage and ESPP are located in ETrade.
I am thinking about investing with the Boglehead’s three-fund portfolio method, though I don’t intend to buy any bonds or international funds. As such, I’ve done a fair amount of research and am very interesting in Vanguard’s growth ETF ($VUG), along with a few more funds (VOO, VTI, SPY, QQQ, XLK, VGT). Still deciding on which fund and the respective allocation percentages.
Perhaps the community can assist with a few questions:
1. What is the right brokerage to use to invest in these funds? Should I buy the ETFs in my individual in ETrade, or do I open up a new account (whether that be with Vanguard directly, etc)?
2. Alternatively, should I buy these funds in a Roth IRA? Currently I have a 401(k) with Schwab that my employer matches 100% up until 4% of my salary, which is all I contribute.
3. Do you have any opinions on the funds mentioned above?
Thanks all
1. ETrade should be fine if you already have them. I have a Youtube video that breaks down all the major brokerages: https://www.youtube.com/watch?v=T8bXIghFqds&feature=youtu.be
2. I do LOVE the Roth IRA. But I would max out your traditional 401(k) contributions until you get the max. Even better – can you contribute to a Roth 401(k) and get the same 100% match? If so, that should be your first priority.
3. Don’t get too cute about it. SPY+QQQ will be your most conservative mix. VTI+VGT might be a fun mix that’s a bit more risk-forward, I lean towards that. Just know that some of the ETFs you’re looking at are the same, and that many have overlapping holdings, so I wouldnt buy more than 2-3. I believe that software tech is the future so I would overweight towards IT (VGT,IGV, etc), but still be exposed to general US economy (SPY/VOO/VTI).
Thanks for the reply.
In response to your Roth IRA comments, I just re-reviewed my company’s 401(k) policy and it states that my contributions are matched at a rate of 100% on the first 4% of my pay that I contribute to Roth 401(k) and pre-tax combined. Currently, I am contributing 4% of my pay to my pre-tax, which is matched but I am not contributing to a Roth. In addition, the plan’s contribution limit is 50% of eligible compensation (pre-tax 401(k) combined with Roth 401(k) contributions).
Seems like I need to think about this a bit more.
As for the ETF portion:
I used an ETF Overlap tool see where the overlaps are for each fund combination: https://www.etfrc.com/funds/overlap.php
After careful consideration, I am going to go with a three-fund approach with VTI, VUG, and VGT. This would give me a nice mix of ETFs for Large Blend, Large Growth, and Tech, and generally cover the stocks that I am interested in, while leaning heavily towards large-cap U.S stocks and tech. I also like low expense ratios of .03%, .04%, and .10% for VTI, VUG, and VGT, respectively.
Based on the top-10 holdings for each fund:
– All three would have large exposure to Apple, Microsoft, and Visa
– VTI and VUG would have overlapping exposure to Amazon, Facebook, and Google, all three are companies I am looking to acquire positions in but cannot afford individually
– VUG and VGT would increase my position in Mastercard
– VTI includes Berkshire Hathaway and Procter and Gamble, as well as increasing my position in Johnson & Johnson, which I consider to be a great healthcare stock
– VUG contains Netflix
– VGT contains some B2B software and software stocks that I am confident about: Adobe, Salesforce, Cisco, and Oracle, as well as some processing and semi-conductors in Intel and Nvidia
As for allocation percentages, I think I will following something similar to 40-35-25 (VTI-VUG-VGT).
Hi James,
Thank you for sharing your ETF overlapping tool! I love it!
@JamesC Thanks for the tool, it is pretty amazing. Helped me find a 99.2% match in Fidelity to the Vangauard IT ETF.
James, this etf overlap tool is awesome! and thanks for sharing your plan. i need to figure where my overlaps are now!
Dave Ramsey just called Justin….He wants to speak to you….lol
- will he be mad at me?? my opinion is that Dave Ramsey is a really good base for the majority of the population. But if you’re on here, you’re probably more financially-oriented than average, and probably can handle a more-optimized approach and not simply doing the debt snowball method!
Ok, so ended up opening a ROTH IRA with Fidelity and started with VOO(40%) VOE(40%) & QQQ(20%).
I am going to change it a bit and do
VOO – 40%
FTEC – 40% (99.2% similar to VGT but lower expense ratio)
VOE – 20%
Justin has given lot of info here. My $.02 – if you don’t qualify for Roth IRA, there is something called backdoor IRA (not sure if this is the official name) that you can look into. Your accountants can educate and open one for you.
i’ve been waiting to be risk-on for weeks now…. I feel like I’m Tom Hanks in Castaway!
will he be mad at me??Log in to reply.