I am going to make an attempt to contribute $5000 to my Roth IRA again this year. I’m currently trying to figure out a strategy. My Roth IRA is at Vanguard, and I currently have my money in two funds: the Vanguard Total Stock Market Index and the Vanguard Total International Stock Index. Not surprisingly, both tanked in 2008. The premise behind the two funds is sound, but I have two dilemmas on my hands.
1. Do I just contribute to these two funds or do I add another fund?
2. How should I schedule my contributions?
The second question depends a bit on the first. With Vanguard funds, there’s a minimum initial purchase, typically $1000-$3000. So if I add another fund, I will have to make a large initial contribution. Once I’ve purchased shares of a fund, I can contribute much smaller amounts and could do dollar cost averaging over the rest of the year.
I have to admit, I’ve been avoiding thinking about it, because I feel like I’m just pouring money into a losing strategy, when I know that I won’t need this money for 30+ years, and history tells me that it’s a good idea to invest in my future.
Right now, I’m holding off until I’ve finished my taxes. It looks like I’m going to owe the tax man again this year, which is always frustrating, but at least I’m not giving the government an interest free loan. I’m not going to owe so much that it will change how much I can contribute, but it’s a good way for me to set a personal deadline and not be worrying about too many personal finance issues all at the same time.
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