Roth IRAs allow you to save money on taxes while growing your portfolio, but what you put in your retirement account determines how much it will grow over time. You can get started with ETFs, and that’s the direction a 47-year-old Redditor is heading.
A Redditor recently posted in the Bogleheads subreddit about opening a Roth IRA. The individual wants to go all-in on the Vanguard S&P 500 ETF VOO or the Vanguard Total Stock Market Index Fund ETF VTI. Commenters shared some valuable advice for the Redditor.
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Many of the commenters suggested allocating funds across multiple ETFs instead of going all-in on VOO or VTI. While putting all of your money into a single ETF is less risky than putting all of your funds into a single stock, it still has some risk.
For instance, some growth-oriented ETFs can deliver much higher returns than VOO during bullish markets. Having some money in VOO, VTI, and a few ETFs that can outperform them can lead to higher returns.
The great thing about these ETFs is that most of them have low expense ratios. Vanguard is known for having some of the lowest expense ratios in the industry. That allows you to keep a higher percentage of your total returns.
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One of the top comments came from a Redditor who asked the original poster to consider their risk tolerance before buying ETFs. The original poster is 47 years old, and that’s important context.
If the Redditor is looking to retire in five years, they may not want to take as much risk. However, someone who is retiring in 20 years can still afford to take some extra risk. The commenter suggested some level of bond allocation but stated that only the original poster knows how much risk they can handle.
It’s important for the Redditor to consider how they would react if their portfolio suddenly dropped by 10%-20%. Investors encounter many of these types of drops throughout their lifetimes.
Panic selling at the lows is often a bad strategy due to the stock market’s long-term resilience. If the Redditor can set and forget their portfolio, it’s easier to justify going deep into ETFs like VOO and VTI.
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One of the comments came from a Redditor who mentioned that only buying U.S. stocks is a single country risk. The commenter compares it to only buying stocks in a single sector instead of diversifying.
This commenter wasn’t the only one who pointed to the importance of international stocks. One of the top comments suggested that the Redditor puts some of their money into the Vanguard Total International Stock Index Fund ETF VXUS.
VXUS gives investors more exposure to international markets. Less than 10% of its assets are allocated toward North American stocks. The fund has a 0.05% expense ratio and has delivered an annualized 12.2% return over the past five years.
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