This is a continuation of my post titled, Setting up a Roth IRA – 4 Easy Steps (part 1) – Outlining (in 4 easy steps) the creation of my brother’s Roth IRA. Parts 1 and 2 discussed the WHY, now we are going to discuss the how.
Step 3 – Picking a Brokerage Site
If you ever read my About Me Page you may have noticed that I have my Series 6 and Series 63. Which are the licenses needed federally and in the State of New York to sell
- Mutual Funds
- Closed-end funds on the initial offering only
- Unit Investment Trust
- Variable Annuities
- Variable Life Insurance
- Municipal Fund Securities
So why do I need a web brokerage site? Because he is my brother and I don’t feel the need to charge him. That being said, I do not think any financial planner, wealth manager, stock broker, etc. is wrong for charging you, a client, for a service they provide. While this sentiment might not coincide with most financial bloggers out there, if someone is providing you a service there is nothing wrong with being compensated for said service. While people should be faulted for not knowing basic facts of their investment plan, no one should be faulted for handing it off to someone else to handle (just like I don’t bother handling my car’s service…mainly cause I am likely to break it!).
To be fair I didn’t review ALL of the options out there, but I had a few minor requirements and then checked some trusted bloggers. I needed:
- No Load Mutual Funds
- No Fees if there is no intial deposit
So I went searching and reviewed these Bloggers’ posts on the Subject:
I ended up going with T. Rowe Price. I did so because they offered no load mutual funds, and had a ton of funds that do not require an initial investment (which vanguard does on all theirs; the minimum was $1K). I didn’t choose fidelity because most of their funds require a monthly funding of $100 vs. T. Rowe Price’s $50. Since I was going to invest $200 to $300 a month, I wanted more options and went with T. Rowe Price.
Step 4 – Picking Funds and Asset Allocation
Considering we dealing with a beginning investor, I felt that he should have a broad range securities. First thing is first, I have to find out my brother’s risk tolerance (it should be noted that he is 26 years old), so I had him take a bunch of different risk tolerance surveys:
- https://moneycentral.msn.com/investor/calcs/n_riskq/main.asp
- https://www.partnervest.com/Risk-Tolerance-Questionnaire.html
- https://www.kiplinger.com/tools/riskfind.html
They all came back with similar results – he was moderately aggressive. This result shocked me a bit! I figured being his brother and a close one at that, I “knew” he would come back ultra ultra conservative. Well, boy was I wrong. So, I threw away my gut feelings and went with the surveys and created an equity heavy portfolio consisting of:
- Blue Chip Growth ($50/month)
- Retirement 2055 Fund ($100/month)
- U.S. Bond Index ($50/month)
All funds have an expense ration of less than 1% and no fees! Once the portfolio gains traction and actually has some assets I will re-allocate with him possibly getting a little more advanced.
Would you have done differently? Any suggestions would be great!
Congrats on finding such low cost funds and no fees. I was surprised to see the initial deposit fees at Vanguard given the hype surrounding them. But the cost over the long-haul should balance them out. I'll just plan on making the max contribution every year which is the plan anyway. I wonder if this limits my ability to dollar cost average?
As for your allocation, at first I thought, why bother with a target date fund if you're going to pick other funds? But then I saw your other funds were on opposite ends of the spectrum. So they likely balance each other out.
Good series!
Good luck with the Roth. You've picked a great time to get started. Prices are incredibly cheap no matter how you slice it
MBB,
Thanks for making my research project a lot easier! lol
PT,
Yeah, when I originally searched for a home for my Wife's Roth I was flabbergasted about the Vanguard situation, and then reconfirmed it when I set up my brother's Roth IRA. Its not a huge deal, if you have the money sitting there to put it in.
It will originally hurt your DCA plan (since you will be buying a lump sum of $3K) but after 30 to 40 years (I think you are around my age) it shouldn't make a difference.
Thanks for looking into the funds – yeah I picked up the 2055 fund to pick up a sliver or a few other sectors of the market not represented by the bond fund and the Blue Chip.
I went with TRowe Price last year and I’ve been pretty happy with them. I had a customer service issue with Fidelity that really turned me off to them, but so far so good with TRowe