conversation: User (ahurlly): "I'm 21 and a few months ago I opened a Vanguard Target Retirement ROTH IRA. At the time I only put 1k in but I put in $50/month (I'm in college so this is a lot to me) so now it's at 1.5k. Every time I see targeted funds come up people talk about what a horrible idea they are. Why? Can/should I move my money to another fund?\nNot sure if it's relevant but I also have a non retirement fund through Vanguard that I contribute $100/month to with a 5.5k balance currently that I plan on using as a down payment on a house someday."
  Self: "Fantastic! No, target date funds are not a horrible idea. They're basically something like the "three fund" strategy that re-balances every year according to how close the date is -- things you can do yourself with other low-cost index funds. So instead of an "A+" they're just an "A". There are far, far worse things than target date funds. \n\nCan/should you move money to another fund? You can, you don't have to. Since you have $1.5k, which is close to the minimum you can initially invest in funds at Vanguard (if I remember correctly, the minimums are $1k?), so any fund you buy would be slightly less diversified than a target date fund. \n\nAlso, good for you on saving ahead for a house! "
  User (ahurlly): "Thank you I have some guidance on personal finance from my uncle but am largely clueless as to what I'm doing other than "save good, spend bad." Based on what you've said I'll leave it where it is at least for now. I was just afraid they had lower returns or were more expensive or something."
  uh-okay-I-guess (uh-okay-I-guess): "They are more expensive. The difference between a target date fund and managing everything yourself is about $1/year for every $1000 you have invested.\n\nSo for you, you are paying an extra $1.50/year to invest in that target date fund. That's probably worth it. Later in your life, when you have a million dollars invested and they charge you $1000/year more than buying other Vanguard funds, you might feel a bit differently."
  User (ahurlly): "That makes sense. Right now my income and therefore my savings are pretty low but I'm majoring in engineering so my income should increase significantly in the future. If it does I'm thinking I should probably move it somewhere else a few years out of school."
  fontophilic (fontophilic): "When you get hired, you should take advantage of any employer match, and pre-tax retirement accounts (401k) you can.\n\nRoth, while having essentially 0 income, is the right choice. But if you start reaching higher tax brackets, take that money pre-tax. \n\nI might be telling you things you already know, but it took me a while to appreciate. You want a mix of Roth and non-roth accounts in your retirement, so you can juggle how much income tax you'll pay in a given year in retirement. Roth account disbursements aren't taxable as income, pre-tax does count as income. "
  User (ahurlly): "The company I'm an intern for now (and am really hoping hires me when I graduate) has an Employee Stock Ownership Program (ESOP) so I'm not sure how that works with retirement plans but if I have a job that matches 401k contributions I'll definitely do that."
  