VFIAX mutual fund or VFFVX target retirement fund for a Roth IRA beginner?

Submitted by denver-max t3_10q6das in personalfinance

I am in my mid 30s, finally settled into my career, and have a solid savings. I want to take 3k from my savings to open a Roth IRA from Vanguard, and I am having a hard time choosing between the VFIAX mutual fund and the VFFVX target retirement fund to start. Admittedly, I know very little about investing, so I’m looking for some guidance from others who already have their feet in the game. I am open to all advice!

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Cruian t1_j6o3oys wrote

>for a Roth IRA beginner?

Then:

>VFFVX target retirement fund

Since I personally consider VFIAX to be an obsolete recommendation in any account where you aren't limited to a short list to pick from. Doing VFIAX would mean taking on an uncompensated risk factor (the bad kind of risk) of single country while also ignoring a compensated risk factor (the good kind of risk) of smaller market cap holdings.

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Upset-North-2211 t1_j6o3szs wrote

I would buy VTI instead of either of these MFs. More tax efficient, lower expense ratio, better diversification and 100% stock are most appropriate for a Roth.

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Cruian t1_j6o5znx wrote

Replying to Upset-North-2211 (#1,672,771)

>More tax efficient

No it isn't, since this is an IRA. Taxes don't matter.

>better diversification

Only better than VFIAX. Worse than the TDF. The TDF fully includes VTSAX, as well as VTIAX, and VBTLX, and VTABX.

>lower expense ratio

At the cost of diversification.

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MissAnth t1_j6o7tl2 wrote

VFIAX. Its expense ratio is half that of the target retirement date fund.

You have many years to invest in something else, or move the money when it is age appropriate. You don't need to pay double the expense ratio for someone to do that for you.

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Cruian t1_j6oawtp wrote

Replying to MissAnth (#1,674,119)

It shouldn't be looked at as "double the ER" but rather as 4 basis points.

Why? Because double being 4 basis points is basically nothing, especially when you consider the benefits (diversification including the addition of good risk and removal of bad risk factors).

Doubling from 0.30% to 0.6% is much more noticeable.

>You don't need to pay double the expense ratio for someone to do that for you.

The extra costs are from going global. Vanguard's TDFs are essentially the same ER as mirroring the ratio yourself.

Edit: Typo

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