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Three Investment Ideas for the Hands-off Investor
Funds that diversify for you
I have a friend who is interested in opening up a ROTH IRA in addition to her 401K, but she has absolutely no idea how to invest. Quite frankly analyzing spreadsheets and financial data is too daunting of a task for her. She knows retirement is important, but she just wanted to find a decent place to put her money where she wouldn’t have to worry about over analyzing data but would make decent returns if she stayed with it. She doesn’t want to try to pick her own individual stocks, but she also doesn’t want to pay exorbitant fees on mutual funds or on a financial advisor.
I decided to do a little research for her, and I found three decent firms that would allow her to meet her investment goals with a hands-off approach. I normally wouldn’t recommend target funds, because they tend to be too conservative as the target date approaches. However, for someone who wants to be as hands-off as possibly, they can be a good option. As always, the best advice is to do your own research and make your own decisions when it comes to investing, because you are the one who will ultimately be responsible.
The advantage to fidelity is that you don’t need a minimum investment amount if you set up automatic investments from your bank account. If you don’t want to set up automatic investing, you need to start with 2500. There are no commissions if you invest in fidelity’s funds, and there is also no annual maintenance fee.
I was unable to find any target date funds without signing up for Fidelity, so you would have to decide between funds such as Large Value, Large Growth, High Blend, Mid-Cap Value, etc. This may be difficult and prove daunting if you aren’t really sure what those terms mean, and not everyone has a knack for understanding investing terminology. On average, the expense ratios range from .7-1.0.
T. Rowe Price:
T. Rowe Price is good because they offer a variety of target funds that you can just put money into and not have to worry about. There is no commission when you invest in one of their approved funds, but they have over 90 to choose from, which could be daunting. However, if you want to just set it and forget it, you can always just pick the appropriate target date fund. Another advantage of T. Rowe Price is that it requires the lowest initial deposit if you do not want to set up automatic investing, at only $1000 regardless of the fund you chose. It does have an annual fee of $20 for an account with less than 10,000, but that can be waived with signing up for all electronic statements. The expense ratio for their target fund 2050 is about average, at .76.
VanGuard also has the target funds that you can set and forget, and also offers no commissions when you purchase vanguard funds. There is a minimum investment ranging from 1000-3000 depending on the fund that you choose. Like T Row Price, there are account fees, but those can be waived with electronic statements. The biggest advantage to using VanGuard is that they generally offer the lowest expense rations. The expense ratio for the target 2050 fund is only .19%, which is pretty awesomely low, and probably one of the best you will find.
Each individual fund at each firm will have a different expense ratio, but generally these will be lower at these 3 firms than if you go through a bank or something set up more for stocks (like e-trade or Scott trade) Vanguard generally has the lowest expense ratios on average for their funds, but you will probably be able to find funds with fairly low fees at each. The best approach is to compare the funds you are interested in from each firm, determining the costs and benefits, and choosing the ones that are most suited to meeting your goals.
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