Cashola

Vanguard STAR Fund - The Beginner’s Best Bet

The time has finally come for me to take my dive into the world of investing. This weekend, I’ll be opening my Roth IRA with Vanguard and investing my money in the Vanguard Star Fund (VGSTX). J.D. of Get Rich Slowly wrote a helpful article - “How to Start a Roth IRA (and Where to Do It)” which opened my eyes to what’s available. J.D.’s article featured “The Big Three”:

Fidelity Investments offers a no-fee IRA. There’s a $2,500 minimum initial deposit, but this is waived if you commit to $200/month automatic contributions. They offer 4,500 mutual funds, about a quarter of which have no transaction fee. In short, you can open a no-cost IRA at Fidelity with a $200 starting investment if you invest in mutual funds and you agree to contribute $200/month. Apply for a Roth IRA with Fidelity.

It’s also possible to open a no-cost Roth IRA at The Vanguard Group. To do this, you must elect to receive electronic statements and start with $1000 in the company’s STAR fund. (The STAR fund is an mutual fund of mutual funds, a safe choice for beginners.) Additional contributions require a minimum of $100 unless you use their Automatic Investment Plan, in which case the minimum is $50. There are no fees to purchase the STAR fund. Start a Roth IRA at Vanguard.

T. Rowe Price charges $10/year for Roth IRA accounts until you have a balance above $5,000, after which there is no fee. You need $1,000 to open your IRA, but this minimum goes away if you sign up to contribute at least $50/month with the Automatic Asset Builder. There are no sales fees or commissions to invest this money in T. Rowe Price mutual funds. Open an IRA at T. Rowe Price.

All these investment houses are great choices for the beginning investor, but I’ve always been somewhat infatuated with Vanguard and decided to hold out until I could hop on the Bogle boat. What attracted me to Vanguard is their low expense ratios and great overall performance. Now the STAR fund may not be that impressive, but it’s great for the beginning investor who doesn’t have much money to initially invest. With regular deposits, your Vanguard STAR fund is a great stepping stone to the higher priced Target Retirement Funds which require a $3000 minimum. My projected date to transfer out of my STAR Fund into a Target Retirement Fund is January 2009. How’s that for a goal? In the end, you can’t go wrong with what you choose. Do your research and find out what suits you best.

Roth IRA defeats Credit Card debt

As you can see, I’ve been gung-ho about investing and personal finance as of late. Receiving my first check, I’ve been thinking of ways to effectively apply everything I’ve learned so far. In my previous post “How to Get a Better Interest Rate on Savings“, I discussed how I decided to open a high-yield savings account with Washington Mutual. So far so good, but I ran into a dilemma. Do I completely pay off my $900 credit card debt this month and wait until the end of next month to start my Vanguard STAR Fund -or- do I pay off my card in 3 months and open my Roth IRA at the end of this month. If my credit card debt had a high interest rate (which it previously did at 21%), I would’ve probably payed of the credit card first; however, I transfered the balance to American Express Blue and I am now sitting at a manageable 4.99% APR. I figure the benefits on investing in my Roth IRA now and slightly delaying the payoff of my credit card debt will outweigh paying off my credit card debt now and delaying investing in my Roth IRA.

A Future Boglehead?

After I wrote my “Self-Made Millionaires’ Secrets” post the other day, I decided to work on Self-Made Millionaire Secret #2: Educate Yourself. I already have my sight set on where I want to go, but lack the real knowledge to do so. I decided to research Investing books out there that scored great reviews and found “The Boglehead’s Guide to Investing”. This book is awesome so far; however, It made me feel frustrated at times when I look back at all the things I did wrong financially, but at least I know better now. I receive my first paycheck this Friday. It’s time to put this new knowledge to use! Am I a future Boglehead? Quite possibly! I will continue to review the book as I get through it so stay tuned! Off to visit Diehards.org!