Roth IRA - Mutual Fund Contributions?

Question

I recently setup a Simple Start Roth IRA from Fidelity and have automatic deposits to a Fidelity Freedom Mutual Fund every month. I deposit $200 each month to the fund and would like to continue so until I max it out for the calendar year. For subsequent years, should I begin contributing to another mutual fund within my Roth IRA to diversify my portfolio fund a little or should I continually contribute to that fund. The reason why I'm asking is because the Freedom Fund I currently have is a target retirement fund. I am interested in more aggressive funds that can help maximize my portfolio.

Answer 1

I started investing 11 months ago and I have 3 funds in my Roth IRA. I invested in Legg Mason Partners (formerly Smith Barney) Aggressive Growth, LMP Fundamental Value, and LMP Appreciation Fund. I only put $50 into Aggressive Growth, $25 into Fundamental and $25 into Appreciation every single month.

LMP Aggressive Growth is probably the best aggressive growth fund out there and is the oldest mutual fund around. There's not many mutual funds out there that has a 10 year or more history.

Anyway, that's great that you are investing $200/month. I'm a financial representative and I tell my clients to invest systematically and show them the Dollar Cost Averaging concept. The maximum contribution to a Roth IRA is $4000 for year 2006-2007 ($5000 if you are age 50 or over). I think it goes up to $5000 in 2008. I assume you are under 50 years old and so, you the maximum contribution you can make each month right now is: ($4000/12) = $333.33.

Good luck with your future!

Answer 2

First of all the question you asked indicates that you are a novice. Nothing wrong with that just a fact. A Roth IRA and a no load mutual fund are not mutually exclusive. You can, in fact, open a Roth at a no load mutual fund. Your age would make a Roth accou very adviseable. I highly recommend that you do not use a brick and motor bank for any of your money. Your six months reserve should be in a money market fund at a mutual fund company. At the same company you could open up a Roth account. The next issues will be fund selection. A no load mutual fund will give you no guidance. Most people investing on their own do a poor job of selecting the funds to invest in. Select an equity or growth fund. Stay away from a sector growth or equity fund nad use a widely invested fund. T. Rowe Price is a good no load mutual fund company. There are many others. Be careful but also be aggressive with how much you invest in your Roth. Be careful because it is very expensive (in penalties and taxes) to take the money out before retirement (except for a few specific defined reasons). Be aggressive because of a saying that goes: "live like now one else, so you can live like no one else". The money you invest now will compound to make you independently wealthy while most of your peers are just beginning to think about providing for thier future. Fee free to email me if you have questions. I hope that this helps. Your success to this point and the questions that you are asking are very impressive

Answer 3

This is long so here goes...

The freedom funds at Fidelity are designed to be a one stop fund for A LOT of diversification and a suitable allocation mix based on your goals. you can go with another fund altogether or even select a more aggressive freedom fund. it depends on whether or not you want to make any sector bets or just be more aggressive and still diversified. 2 things to keep in mind 1) Since the freedom funds themselves are already in 20 different funds covering just about every sector between stocks and bonds, "getting another fund to diversify" shouldn't be an issue. If anything you are getting another fund to concentrate. and 2) As a general rule people are either way more aggressive or way more conservative than whats appropriate. These funds help you to take an appropriate amount of risk for your goal. Its like the old saying that base hits win the game. consistency and discipline are your friend. When you swing for home runs it might be prettier when you get one and more fun to brag to friends about, but you also tend to strike out a lot more which can kill gains in the long run. Taking bets is how you strike out.

You can go to Ed Jones and pay a broker for suggestions. But there is also a section on Fidelity's website called fund picks from Fidelity. In there you will also find suggestions for just about any market sector between fidelity and non-fidelity no load funds. Most funds do have a 2500$ minimum though so you might want to either build your current fund for a few years (at 200 a month) or make some additional contributions to hit your 4k for the year quickly.

And keep in mind that more aggressive == more risk. Most investors do a poor job of timing sectors and markets and usually take risks in the wrong sectors at the wrong times (ref. tech in 2000...). So if you choose to go your own way make sure you are confident in your knowledge of the markets and funds you are using. Thats why lifecycle funds (like the freedom funds) are building in popularity at many firms and 401k's and also why a lot of people choose to invest in index funds. They find that if they screw with it enough they tend to break it. Index funds are simple and cheap. Lifecycle funds are simple but put a bit more management into it than an index. Good luck on your retirement goals. Stay disciplined and you'll get there.

Answer 4

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Answer 5

You are a very smart investor. When you ask these types of questions that shows that you are thinking ahead. The answer is absolutely yes. You should diversify into different type of mutual funds. The Freedom funds are a broad approach bunch of mutual funds that will quite frankly never perform better than the market averages. They are fine for dump it and forget it type planning for retirement types. Sort of contains a little bit of everything.

Now here is one thing you may not have considered about this fund. Its expense ratio is 0.70%. It invests in other Fidelity funds that also have expense ratios. Many in the 1.00% range. So your total expense ratio is about 1.7%.

Index funds have expense ratios in the neighborhood of 0.2% to 0.6%. So you would be at least 1.3% better off investing in index funds.

Fidelity does have many good more agressive funds to choose from also. Unfortunately, their index funds have a very steep initial investment requirement. If your account allows you to invest in ETFs, that would provide you with much more flexibility. But just sticking with Fidelity funds will also provide you with many good alternatives.

Answer 6

If your asking whether or not to invest more, I would say yes, absolutely. You can open a seperate IRA from your Roth-IRA and the Traditional IRA can be a little more aggressive. Try not to be too agressive, maybe a blue chip value fund, or a world growth fund would do the trick. You can talk to a professional advisor about this more, any good advisor would be more than welcome to help you. Good luck!

Answer 7

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Answer 8

yes