I opened a Roth IRA last year and I have been contributing to it monthly. I have basically no idea what I am doing, so I chose a target fund. I tried to find one that had relatively low fees and had been tracking the S&P pretty well. I guess my question is that now that I am funding it, how do I judge how well it is performing? Is there a guideline on the amount of growth I should see? Also, how long do I stick it out with a fund that seems to not be growing?
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My opinion is that you are just starting out (so I disagree that you have "no idea what you are doing...." You are just in learning mode.)
You are way ahead of the average consumer in that you have opened up your IRA....and you knew to look at the fees. What is the expense ratio?
To directly address your question, the S and P 500 is a great benchmark. You want to be roughly in line with that at a minimum.
Is the fund you selected underperforming against that?
If you are underperforming, I would generally not wait longer than a year to move my investment (I am a long-term buy and hold investor, not an active trader). That said, I invest quite heavily in a fund that simply matches the S and P. I prefer that to a target date fund, because I do not like bond funds, and those are often a part of target date funds.
I would also prefer to balance my own portfolio, vs having a fund manager do it (I disagree w/conventional wisdom of moving into fixed income @ retirement).
Keep on investing!! It is the best way to learn and ensure your money is building wealth for you long term.
Post by barefootcontessa on Jul 22, 2014 8:13:20 GMT -5
it should perform at least as well as a major index like the S&P or the DJIA. I would look very closely at the fees associated with the target fund. Over time they can really eat away at your retirement funds. Fees are one of the main reasons I prefer index funds for accounts that are not self-directed. Once you factor in fees you are often better off in the long run with an index fund instead of a managed one. A friend who works in the financial industry told me that most of the people he knows put their own personal money into index funds. GL.
Which target fund is it? And what components go into that target fund? You can get that detail on the fund website.
The issue with comparing your returns to S&P 500 returns is that your target fund probably has 10-20% in bonds, depending on the target year. So the bond portion is going to bring down the returns slightly (but also reduces risk).
But as long as your return is just slightly below S&P 500 return, I think you are fine. If it's like 2-3% off or more, then I'd be concerned.
Hit send too soon... Is it worth it to switch my IRA to Vanguard? My 401(k) is also through Fidelity. Or pay the $75 fee, or is there a better no-fee fund through Fidelity? Thanks
Hit send too soon... Is it worth it to switch my IRA to Vanguard? My 401(k) is also through Fidelity. Or pay the $75 fee, or is there a better no-fee fund through Fidelity? Thanks
Look at it this way. There is a .6% cost difference between the 2 funds (.78% vs .18%). If you have $10k in your account, you'd save $60 a year by moving to the Vanguard one.