Roth IRA all in one fund, or not? [duplicate]
In your case, you could very well leave it in something like FFFFX, which for readers is a self balancing fund with a target retirement date of 2040.  These funds are a conglomeration of other funds that tend to move more conservatively as time passes. However, I like to put no more than 10% of my portfolio in one fund with exceptions made for balances less than 20K.   So If I had 18K it really wouldn't matter if it was in FUSEX a S&P 500 index fund.  However by investing in FFFFX you pretty much meet that requirement.    So you are golden if that fund meets your goals.  For me, I kind of hate bonds and despite being of similar age, I have almost no money invested in bonds. First, you should diversify your portfolio.  If your entire portfolio is in the Roth IRA, then you should eventually diversify that.  However, if you have an IRA and a 401k, then it's perfectly fine for the IRA to be in a single fund.  For example, I used my IRA to buy a riskier REIT that my 401k doesn't support.   Second, if you only have a small amount currently invested, e.g. $5500, it may make sense to put everything in a single fund until you have enough to get past the low balance fees.  It's not uncommon for funds to charge lower fees to someone who has $8000, $10,000, or $12,000 invested.  Note that if you deposit $10,000 and the fund loses money, they'll usually charge you the rate for less than $10,000.  So try to exceed the minimum with a decent cushion.   A balanced fund may make sense as a first fund.  That way they handle the diversification for you.  A targeted fund is a special kind of balanced fund that changes the balance over time.  Some have reported that targeted funds charge higher fees.  Commissions on those higher fees may explain why your bank wants you to buy.   I personally don't like the asset mixes that I've seen from targeted funds.  They often change the stock/bond ratio, which is not really correct.  The stock/bond ratio should stay the same.  It's the securities (stocks and bonds) to monetary equivalents that should change, and that only starting five to ten years before retirement.  Prior to that the only reason to put money into monetary equivalents is to provide time to pick the right securities fund.  Retirees should maintain about a five year cushion in monetary equivalents so as not to be forced to sell into a bad market.   Long term, I'd prefer low-load index funds.  A bond fund and two or three stock funds.  You might want to build your balance first though.  It doesn't really make sense to have a separate fund until you have enough money to get the best fees.  70-75% stocks and 25-30% bonds (should add to 100%, e.g. 73% and 27%).  Balance annually when you make your new deposit.
"I live near historic Concord, Massachusetts, and frequently drive past Walden Pond. I'm reminded of Henry David Thoreau's words,  ""Simplify, simplify, simplify."" In my opinion, fewer is better. 2 checkbooks? I don't see how that makes budgeting any easier. The normal set of expenses are easily kept as one bucket, one account.  The savings 2&3 accounts can also be combined and tracked if you really want to think of them as separate accounts.  Now, when you talk about 'Retirement' that can be in tax-wise retirement accounts, e.g. 401(k), IRA, etc. or post tax regular brokerage accounts. In our situation, the Schwab non-retirement account was able to handle emergency (as money market funds) along with vacation/rainy day, etc, in CDs of different maturities. As an old person, I remember CDs at 10% or higher, so leaving money in lower interest accounts wasn't good. Cash would go to CDs at 1-5 year maturities to maximize interest, but keep money maturing every 6-9 months.  Even with the goal of simplifying, my wife and I each have a 401(k), an IRA, and a Roth IRA, I also have an inherited Roth, and I manage my teen's Roth and brokerage accounts. That's 9 accounts right there. No way to reduce it.  To wrap it up, I'd go back to the first 4 you listed, and use the #4 checking attached to the broker account to be the emergency fund. Now you're at 3. Any higher granularity can be done with a spreadsheet.  Think of it this way - the day you see the house you love, will you not be so willing to give up that year's vacation?" Generally, you have 60 days to return funds.   If you've been stowing away money in to a Roth IRA and an emergency strikes you pull out contributions sufficient to tackle the emergency while leaving at least the earnings in there.  You've never paid taxes on these earnings and the earnings will continue to grow tax free.   If you've been stowing away money in a vanilla taxable account and an emergency strikes you pull out whatever amount to tackle the emergency.  You've been paying taxes on the earnings all along but there's no paperwork. You can't replace the money in the Roth IRA (outside the 60 day limit except for some specific same year rules that you should iron out with your custodian) but you also haven't lost anything.  Either way in the event of an emergency the funds are removed from an account, but in one case you haven't been paying taxes on gains. IF you want to go the route of a Roth IRA wrapper for your emergency fund you shouldn't be touching the funds for small events, tires for your car and the like.  If your goal is to juice the tax free nature of the Roth IRA wrapper for as long as you can then repurpose the money for retirement if you never experienced an emergency with the understanding that you may have to gut the account in an emergency, that's fine.  If you expect money to routinely come in and out of the account a Roth IRA is a horrible vehicle. $10.90 for every $1000 per year. Are you kidding me!!! These are usually hidden within the expense ratio of the plan funds, but >1% seems to be quite a lot regardless. FUND X 1 year return 3% 3 year return 6% 10 year return 5% What does   that exactly mean? This is the average annual rate of return. If measured for the last 3 years, the average annual rate of return is 6%, if measured for 1 year - it's 3%. What it means is that out of the last 3 years, the last year return was not the best, the previous two were much better. Does that mean that if I hold my mutual funds for 10 years I will get   5% return on it. Definitely not. Past performance doesn't promise anything for the future. It is merely a guidance for you, a comparison measure between the funds. You can assume that if in the past the fund performed certain way, then given the same conditions in the future, it will perform the same again. But it is in no way a promise or a guarantee of anything. Since my 401K plan stinks what are my options. If I put my money in a   traditional IRA then I lose my pre tax benefits right! Wrong, IRA is pre-tax as well. But the pre-tax deduction limits for IRA are much lower than for 401k.  You can consider investing in the 401k, and then rolling over to a IRA which will allow better investment options. After your update: Just clearing up the question. My current employer has a 401K. Most of   the funds have the expense ratio of 1.20%. There is NO MATCHING   CONTRIBUTIONS. Ouch. Should I convert the 401K of my old company to Traditional IRA and   start investing in that instead of investing in the new employer 401K   plan with high fees. You should probably consider rolling over the old company 401k to a traditional IRA. However, it is unrelated to the current employer's 401k. If you're contributing up to the max to the Roth IRA, you can't add any additional contributions to traditional IRA on top of that - the $5000 limit is for both, and the AGI limitations for Roth are higher, so you're likely not able to contribute anything at all to the traditional IRA. You can contribute to the employer's 401k. You have to consider if the rather high expenses are worth the tax deferral for you. It depends on how much diversification you think you need and what your mutual fund options are. For instance, picking an index fund already provides a fair amount of diversification, especially if you select a Total Market type of index (readily available from Fidelity and Vanguard, and many other fund families). Are you looking to balance domestic vs. international investments? You may want to add an international index fund to the mix. Feel that a particular sector has tremendous potential? Add a sector fund. This investment mix is up to you (or your investment advisor). However, depending on your Roth IRA mutual fund choices, some of these funds may have minimum investment requirement - $3k to open a fund's account, for instance. In that case, you'd have no choice but to put your entire investment into one fund, and wait for subsequent years where you'd be able to invest in other funds after providing additional contributions and/or reallocation any growth from your initial investment. One thing to look at is whether you have an option of putting some of your contributions into a money market account within the Roth IRA - you can then reallocate funds from that account into another fund after you can meet the minimum investment requirement. However, in my opinion, if you start out by investing in a solid, low-cost index fund from a reputable mutual fund company, you've already picked up most of the diversification you need - a single fund is enough. If he moves his 401K to a Roth all in one go, all the money will be considered income for the year he moves it, and he will have to pay taxes on that income.  If he keeps it in his 401K or rolls it into a traditional IRA, he will only pay taxes on the money as he withdraws it. Bottom line, converting to Roth is almost certainly a bad idea. "Answers: 1. Is this a good idea? Is it really risky? What are the pros and cons? Yes, it is a bad idea. I think, with all the talk about employer matches and tax rates at retirement vs. now, that you miss the forest for the trees. It's the taxes on those retirement investments over the course of 40 years that really matter. Example: Imagine $833 per month ($10k per year) invested in XYZ fund, for 40 years (when you retire). The fund happens to make 10% per year over that time, and you're taxed at 28%. How much would you have at retirement? 2. Is it a bad idea to hold both long term savings and retirement in     the same investment vehicle, especially one pegged to the US stock     market? Yes. Keep your retirement separate, and untouchable. It's supposed to be there for when you're old and unable to work. Co-mingling it with other funds will induce you to spend it (""I really need it for that house! I can always pay more into it later!""). It also can create a false sense of security (""look at how much I've got! I got that new car covered...""). So, send 10% into whatever retirement account you've got, and forget about it. Save for other goals separately.  3. Is buying SPY a ""set it and forget it"" sort of deal, or would I need     to rebalance, selling some of SPY and reinvesting in a safer vehicle     like bonds over time? For a retirement account, yes, you would. That's the advantage of target date retirement funds like the one in your 401k. They handle that, and you don't have to worry about it. Think about it: do you know how to ""age"" your account, and what to age it into, and by how much every year? No offense, but your next question is what an ETF is! 4. I don't know ANYTHING about ETFs. Things to consider/know/read? Start here: http://www.investopedia.com/terms/e/etf.asp 5. My company plan is ""retirement goal"" focused, which, according to     Fidelity, means that the asset allocation becomes more conservative     over time and switches to an ""income fund"" after the retirement     target date (2050). Would I need to rebalance over time if holding     SPY? Answered in #3. 6. I'm pretty sure that contributing pretax to 401k is a good idea     because I won't be in the 28% tax bracket when I retire. How are the     benefits of investing in SPY outweigh paying taxes up front, or do     they not? Partially answered in #1. Note that it's that 4 decades of tax-free growth that's the big dog for winning your retirement. Company matches (if you get one) are just a bonus, and the fact that contributions are tax free is a cherry on top. 7. Please comment on anything else you think I am missing I think what you're missing is that winning at personal finance is easy, and winning at personal finance is hard" The fee representing the expense ratio is charged as long as you hold the investment. It is deducted daily from the fund assets, and thus reduces the price per share (NAV per share) that is calculated each day after the markets close.  The investment fee is charged only when you make an investment in the fund. So, invest in the fund in one swell foop (all $5500 or $6500 for older people, all invested in a single transaction) rather than make monthly investments into the fund (hold the money in a money-market within your Roth IRA if need be).  But, do check if there are back-end loads or 12b1 fees associated with the fund. The former often disappear after a few years; the latter are another permanent drain on performance. Also, please check whether reinvestment of dividends and capital gains incur the $75 transaction fee. I would definitely recommend putting some of this in an IRA. You can't put all $30K in an IRA immediately though, as the contribution limit is $5500/year for 2014, but until April 15 you can still contribute $5500 for 2013 as well. At your income level I would absolutely recommend a Roth IRA, as your income will very likely be higher in retirement, given that your income will almost certainly rise after you get your Ph.D. Your suggested asset allocation (70% stocks, 30% bonds) sounds appropriate; if anything you might want to go even higher on stocks assuming you won't mind seeing the value drop significantly. If you don't want to put a lot of energy into investment choices, I suggest a target retirement date fund. As far as I am aware, Vanguard offers the lowest expenses for these types of funds, e.g. this 2050 fund.