Good luck OP. One last thing to think about - if you continue to invest monthly and the stock market dips, you'll be buying low which is a great thing. So don't fear flunctuation at your age! 2008 ended up being a great year for my portfolio since I didn't sell anything but bought quite a bit at the market low.

OP here. Okay, thanks. I think I understand now. It's amazing how much I have learned from this website (once you can plow through the snark, gossip, judgment, etc).
Thank you everyone!

Anonymous wrote:Ok great. One last thing, If I choose the 2025 or 2030 TRF, does that mean the account closes at that time? Or is it more of a rough estimate and you can keep going with it?

No, at the target retirement date, the account shifts into a mix of investments tailored for people who are retired--usually mostly bonds but with some stocks. It's pretty easy to shift your money from one fund to another within the same investment company--if you start out with T.Rowe Price's 2035 targeted retirement fund, it would be easy to change it to another T. Rowe Price fund later.

Understand that having a lower percentage of your retirment invested in stocks has the risk that the money may not grow enough to provide you with as much in retirement. Target retirement funds for 2045 have such a high percentage invested in stocks because young people have time to ride out the ups and downs of the stock market and the long-term average of the stock market provides higher returns than bonds.

You had a question about how do you know whether Vanguard is picking the right stocks. Many of Vanguard's funds, like the one for the total U.S. stock market, don't pick stocks. They invest in the whole U.S. stock market, international stock market, etc. Mutual funds are stock funds where fund managers decide which stocks to invest in, which leads to higher fees.

Anonymous wrote:12:55 again. Also, OP, I think it's great you're doing this -- good luck!! FYI, as a note of encouragement, I am 35 now with healthy retirement savings. When I first started, ti seemed like it would be FOREVER before I reached any significant sums. But over time, those initial savings have really built up.

I have to echo this. I started saving for retirement at 26, when the max I could put in my 401(k) was $7500 a year. Twenty years later, I have almost $500,000.

Ok great. One last thing, If I choose the 2025 or 2030 TRF, does that mean the account closes at that time? Or is it more of a rough estimate and you can keep going with it?

Previous poster again - just wanted to mention that in a financial environment where your bonds are going down, your stocks are likely going up. They typically (though not always) move in opposing directions so having both provides protection for your portfolio.

Bonds are a low-risk investment but they can fluctuate and it's possible to lose money on them. For example if interest rates rise sharply that typically drives bond prices down. Only a plain bank savings account/money market account is truly risk free, but there you are looking at returns of 1%. You don't want to put long-term money there; inflation will eat it up.

It's important to know your risk tolerance. If you can't stomach the idea of 90% stocks, go 80 or 70% (with Vanguard, this would put you in their 2030 or 2025 target retirement fund). With your time horizon you should make any losses back and the gains should be worth the higher risk, but you have to be willing to ride them out.

OP here. Great information once again. The prospect of having 90% of my investment in a shaky stock market scare me!
Is the other 10%, bonds, just savings that can't fluctuate?

You have all been so helpful and supportive, thank you.

OP, I'm 29. I started at 23 and totally clueless with a Roth IRA through T. Rowe Price because I could contribute $50 a month, which was all I could afford at the time. I think their minimums have gone up since then, but the minimum monthly contribution is still pretty low, probably $100. I've heard great things about Vanguard too, but the $1000 initial contribution was too rich for my blood at the time.

I disagree with waiting until you have a 6 month emergency fund. Most Americans never have that, frankly, and I certainly haven't so far. But I have more than a year's salary in retirement savings at this point and I think that's more important. My personal opinion is to get into saving for retirement as early as possible, because you simply cannot make up for the lost time in the market. Just contribute as much as you can to a Roth. It adds up!

Anonymous wrote:Yes, you could start saving 500/month for your EF and 200/month for retirement or whatever, until you build up a satisfactory buffer, then increase retirement savings. I think it is a good discipline to start paying in a regular amount, even if it is very small to start with. You can then increase it as you can raises etc.

If these amounts sound high, just reduce them. If you can only afford $25 a month or per pay period do that. It's better than nothing and you're making a start. Remember what you invest now will be worth much more than the dollars invested in your 40s or 50s.

Anonymous wrote:OP here. You have been very helpful. I think a Vanguard life cycle is the way to go. I understand the automatic allocation shift, and I had never seen something like that before. One thing I'm not understanding though- once the money is there, how do I know what I'm investing in? What stocks? I am trying to figure this out on the website but maybe it's too simple of a question?
Am I just trusting Vanguard to invest in certain stocks?
I am also having a hard time understanding what's more important - establishing an EF or starting an IRA asap. The smart thing would be to establish my EF, but I'm also antsy since I have zero retirement. Can I focus my main savings on EF and put small amounts into my IRA? Even if it's not adding up to much, it would give me a piece of mind.

OP, if you are investing in Vanguard Target Retirement 2040 Fund (which I would recommend at your age), your investments will be allocated into 3 core mutual funds:
-63% Vanguard Total Stock Market Index Fund (U.S. stock market)
-27% Vanguard Total International Stock Index
-10% Vanguard Total Bond Market II Index Fund

This is an aggressive allocation - 90% stocks - because you are young and have time. As you get older, it will become more conservative. For example in 20 years the fund will likely invest around 30% in bonds. Investing in both the U.S. and international provides diversification. I'm sure you know this, but it's key once you start investing to leave this fund alone - don't panic if it drops in value. You should make it up over time.

You need $1,000 to invest initially. I believe you can then automatically invest as little as $50/month.

Hope that helps! You are smart to do this now!

Yes, you could start saving 500/month for your EF and 200/month for retirement or whatever, until you build up a satisfactory buffer, then increase retirement savings. I think it is a good discipline to start paying in a regular amount, even if it is very small to start with. You can then increase it as you can raises etc.

12:55 again. Also, OP, I think it's great you're doing this -- good luck!! FYI, as a note of encouragement, I am 35 now with healthy retirement savings. When I first started, ti seemed like it would be FOREVER before I reached any significant sums. But over time, those initial savings have really built up.

I think the Vanguard life cycle fund invests in multiple Vanguard mutual funds -- check the prospectus for the life cycle fund which will tell you which funds. Then you can go to each Vanguard mutual fund and look at their primary holdings.

Depending on what kind of investor you are, there are also "balanced" funds that can be good from Vanguard and Fidelity.

Focusing main savings on EF, with small amounts every month to your IRA is a good idea. It's a great idea to start now. Time is really the best investment tool available.

OP here. You have been very helpful. I think a Vanguard life cycle is the way to go. I understand the automatic allocation shift, and I had never seen something like that before. One thing I'm not understanding though- once the money is there, how do I know what I'm investing in? What stocks? I am trying to figure this out on the website but maybe it's too simple of a question?
Am I just trusting Vanguard to invest in certain stocks?
I am also having a hard time understanding what's more important - establishing an EF or starting an IRA asap. The smart thing would be to establish my EF, but I'm also antsy since I have zero retirement. Can I focus my main savings on EF and put small amounts into my IRA? Even if it's not adding up to much, it would give me a piece of mind.