how do i decide on an IRA broker?

Question

I'm in the military (E4) and want to start a Roth IRA account, how do i decide which broker to go through?

Answer 1

You can deal directly with some of the fund management companies. Try looking up TIAA-CREF, Vanguard, or Magellan online, and search for "Starting an IRA".

You didn't ask, but I'll throw this in any way. Put your money in an index fund. Look for one with a very low expense ratio, and set it up so that you have an automatic electronic funds transfer into this account every pay day. Continue this when you get back to civilian life, and you'll probably retire a comfortably well off person.

The expense ratio tells you how much the fund manager skims off the top of your payment to manage the fund. Some charge horrendous fees, like 2-3%. That means that if the fund goes up say 6% in a year, you only earned 3-4%. A very low expense ratio would be somewhere in the neighborhood of .5% or maybe .75%

An index fund is one that tracks a given index, like the Dow, the Russell 500, etc. These may go up, they may go down, but in the long term they've generally gone up very nicely. Do a little research on these to see what I mean.

Answer 2

There are several options for you. You need to first decide whether or not you want an online brokerage such as etrade, Fidelity, Vanguard, etc. With these, you will deal with lower fees but you have to do more of the legwork yourself. If you know a little about what you are doing, this may be a good way to go.

On the other hand, you can choose to meet with an actual broker or financial planner. If you choose to go this way, be sure to pick someone who you like and connect with. Choose someone who you trust and has the heart of a teacher. Be sure to not invest in anything that you don't completely understand. If you find a good person, the advantages are that they can understand your personal retirement goals, investment objectives, and risk tolerance. The fees are higher but it can be worth it. For instance, would you rather pay a .5% fee on 10% returns or a 2% fee on 14% returns? Consider more than just the fees.

I personally have chosen to use the online brokerage firms becuause I have done quite a bit of research and have thought through my investment goals. Best of luck to you!

Hope this helps!