Thoughts and observations for those investing on their own or contemplating doing it themselves.
If you are seeking investment help, look at the video here on my services. If you are seeking a different approach to managing your assets, you have landed at the right spot. I am a fee-only advisor registered in the State of Maryland, charge less than half the going rate for investment management, and seek to teach individuals how to manage their own assets using low-cost indexed exchange traded funds. Please call or email me if interested in further details. My website is at http://www.rwinvestmentstrategies.com. If you are new to investing, take a look at the "DIY Investor Newbie" posts here by typing "newbie" in the search box above to the left. These take you through the basics of what you need to know in getting started on doing your own investing.
Saturday, November 20, 2010
Getting On the Yellow Brick Road
If your child (rising DIY investor) made more than $5,000 and less than $105,000 in 2010, he or she can contribute $5,000 to a Roth IRA. This can be done by opening a Roth IRA account at a discount broker before 4/15/2011.
One idea would be to buy 170 shares of VTI. This is Schwab's broad stock market exchange-traded fund. The commission is zero. This exchange-traded fund tracks performance of the Dow Jones U.S. Broad Stock Market Index, comprised of approximately 2,500 companies.
If your child is 18 and this fund achieves an 8%/year average annualized return, it will have increased to $181,160 by the time he or she is 65 years old. At that time 65 will be the new 45, with the advances in plastic surgery, medicine, exercise know-how and what all.
For what it's worth, a conservatively invested portfolio over the past 20 years earned slightly more than 8%/year - even with the weak performance of the past 10 years.
In addition to getting started on retirement savings, your child will gain knowledge about retirement savings vehicles, something that 90% (my own poll) of American teenagers are clueless about.
Full Disclosure: I am not affiliated with Schwab and I do not own VTI.
Posted by Robert Wasilewski at 8:28 AM
Labels: DIY investing
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Don't you mean Vanguard?ReplyDelete
Question: According to Google Finance, the P/E of VTI is around 7.7. But I thought the market as a whole was around 22 or so. Can you explain what's going on?
You are exactly right - my bad! I was thinking about Schwab's broad stock etf SWTSX and put down the vanguard etf. To me it doesn't matter. Over the long term I expect them to perform pretty close.ReplyDelete
The P/E for Vanguard you cited was for the past 4 quarters. Sometimes people use 3 years normalized earnings, 12 month predicted earnings etc. This accounts for the different p/e s you cite, I believe.
Thanks for catching my error.