My road to $1,000,000 - post 1

After months of lackluster production and half-assed attempts at themes, the theme of my blog came to me while on a very aggravating walk with my dog. Aggravating in the sense that I know he's not well trained, but I am both too cheap for dog training, and too susceptible to "giving in" to him when he barks or otherwise acts out. But that is for another time.

The goal: to start with $0 in my IRA and push it to $1mil and track what I learned in order to help others possibly make some better choices.

Set up: one Vanguard Roth IRA with $0

(In addition to the IRA, I've got two brokerage accounts currently; one with Vanguard that was gifted to me by my father from his grandfather, and one through TD Ameritrade. My plan is to not count the value of those accounts and to see what I'm able to produce through my own volition, and from scratch)

For those of you not familiar, Vanguard is a financial entity that offers products such as mutual funds and ETFs (exchange-traded funds)


          - Mutual fund: an investment program funded by shareholders that trades in diversified holdings and is professionally managed


          - Exchange-Traded Fund (ETF): a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund



Vanguard offers a very large selection of funds to choose from; from Long Term Bond Index funds to Energy Sector funds, to the MBS (mortgage backed security) that Ryan Gosling and friends show contributed a great deal to the recession of '08/09. Most of these have a minimum buy-in price, such as $1,000, $3,000, or in the case of one of the larger "Admiral Share" funds, $100,000,000! Admiral Shares are typically just the "better" version of other funds, providing things like lower expense ratios and higher quality asset make-up; more of the Aaa and Aa instead of the lowly B, Bb, and Bbb class securities.


---Also, so as not to assume a certain knowledge level of my non-existent readers, an "expense ratio" refers to the cost of operation of a fund. Most of the funds that Vanguard (and other large financial organizations) offers are managed. People are paid to determine the best stocks to put into mutual/index funds, and they get paid through expense ratios. These expense ratios denote how much money is taken from your fund's value in order to pay for management, among other things. For someone who has $10,000 in a Long Term Bond index fund, their expense ratio is 0.16% and so they will pay $16 for the year that their account is worth $10k. If their account had $20k in the Long Term Bond index fund, they'd pay $32 that year, and so on.


To continue from the above section about minimum buy-ins;

Upon first opening my Roth IRA, I did not have the minimum buy-in amount for the account I wanted to start with ($1,000), so I was only able to invest into the Money Market Settlement fund as there is no minimum buy-in. I invested $100, or $200, or $500 (if I could) into it until I had the minimum $1k buy-in. Since I am 23, I decided to make use of one of the "Target Retirement" funds. These are set up with years noted in the title (for example, 2030, 2045, 2055, etc.) which are supposed to be indicative of the year you plan to retire. I'm 23, I figured I have about 40 years or so until I will retire, so I put my $1,000 into the Target Retirement 2055 fund.


---Separate note on the Target Retirement funds, they reallocate assets as you get closer to retirement. You start out with an aggressive, growth-centric fund (mostly stocks) and ease yourself over to bonds, and then mostly liquid (cash) funds at the end as you age and want to move out of the turbulence of the market.


I put my $1k into the Target Retirement 2055 fund about one week ago and as of right now, it it worth $1,010.14.



Since the market is meant to be utilized as a long-term, many decades long tool, these posts might get tedious. I will try to spice them up with what I've learned from reading business news and economics articles published through various sites.



Best,
Kevin







Some sources:

investopedia.com

vanguard.com

And of course, good ol' wikipedia.com