As my wife and I go through the Dave Ramsey’s 7 Baby Steps, we’re finally completing step 3, building 3-6 months of expenses (although we decided to save closer to a year of expenses), and we’re now entering step 4 where you are to invest 15% into Roth IRAs and other pre-tax retirement accounts.
While I know some people have questioned the mathematical soundness of Dave’s plans, they have worked well for us, and we’re not exactly Dave Ramsey snobs.
We know when to take his advice, and other times tailor his advice to fit our needs.
For example, I think some of his assumptions when it comes to investing (12% returns?) won’t probably pan out, but his basic advice of investing at least 15-20% of your income is sound.
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Investing In A Roth IRA
The first step that we’ll be taking is to invest in a Roth IRA.
Most people will suggest that you invest in a 401k first if the company you work for offers a match on your contributions. Why not – it’s an immediate 100% return!
While my company offers a 401k, they are not offering any matching contributions to our account.
Because of that we’ll be skipping the 401k for now, and moving over to the Roth IRA account that will give us tax free earnings. After we max out our Roth IRAs we’ll most likely be investing back into my 401k up until the maximum.
Where To Get An IRA Account?
So where should you get an account? There are a ton of options out there when it comes to investing. Below I’ve put together a table of some of the best options available for starting your own retirement account whether it’s an IRA, Roth IRA or if you want to just trade stocks.
Each company in the table below has fees, trade commissions and annual fees listed if I was able to find them. If you know of others, or see mistakes, please let me know. Some of the links below may be affiliate links. Included below are both discount brokerages and mutual fund companies.
| Account Minimum | Mutual Fund Commission | Stock Commission | Annual IRA Fee | Review | |
|---|---|---|---|---|---|
| Betterment | none | Included in 0.15-0.35% annual fee. | Included in 0.15-0.35% annual fee. | none | Betterment Review |
| Wealthfront | $500 | Included in fees. FREE up to $10,000. 0.25% annual fee for balances over $10,000. | Included in fees. FREE up to $10,000. 0.25% annual fee for balances over $10,000. | none | Wealthfront Review |
| TD Ameritrade | none | $0 | $9.99 | none | TD Ameritrade Review |
| Kapitall Generation | none | $7.95 | none | Kapitall Review | |
| Etrade | none | Up to $19.99 | $9.99 | none | |
| Motif Investing | none | $9.95 (per motif/bundle of stocks) | Motif Investing Review | ||
| Schwab | $1,000 | ? | $8.95 | none | |
| Fidelity | none | $0 | $7.95 | none | |
| Vanguard | none | $0 | $7.00 | $20 | |
| Ally Invest | none | $9.95 | $4.95 | none |
If you like to be hands off, a robo-advisor might be a good option:
| Robo-Advisor | Assets Under Management (AUM) | Annual Fee | Account Minimum | Bonuses | Review |
|---|---|---|---|---|---|
| Betterment | $15 billion | 0.25% of account balance. 0.40-0.50% w/ human advisors | None | Up to one year managed FREE | Review |
| Wealthfront | $12 billion | 0.25% of account balance | $500 | $5k managed FREE (Bible Money Matters readers) | Review |
| M1 Finance | $1 billion | FREE (fees for add-on services) | None | Review | |
| Blooom | $3 billion | $10/month any account size | None | FREE 401(k) Checkup | Review |
| Axos Invest | $153 million | 0.24% of account balance. | $500 | Review | |
| Acorns | $1 billion | $1/month under $5k. 0.25% of account balance above $5k. Free for college students. | None | Review | |
| Public | FREE | None | Free stock up to $15 | Review | |
| Stash Invest | $600 million | $1/month under $5k. 0.25% of account balance above $5k. | $5 | $5 New Account Bonus (Bible Money Matters readers) | Review |
| SigFig | $120 million | Under $10k FREE; 0.25% of account balance above $10k | $2,000 | ||
| Personal Capital | $8.5 billion | 0.49% to 0.89% of account balance | $25,000 | Review | |
| Wealthsimple | $5 billion | $0-$99,999 0.50%/yr; $100k+ 0.40%/yr | None | Up to $10k managed free (Bible Money Matters readers) | Review |
| Charles Schwab | $15.9 billion | FREE (They require you to hold 6-30% of portfolio in cash) | $5,000 | ||
| Fidelity Go | N/A | 0.35% of account balance; | $5,000 | ||
| Vanguard | $101 billion | 0.30% of account balance | $50,000 |
Who Do Other Blogger Experts Use?
Mike with ObliviousInvestor.com invests with Vanguard because he believes that some of the other companies have a conflict of interest and put investors interests second.
Vanguard has a unique ownership structure such that the company is actually owned by the people who invest in their funds. (That is, the clients are also the owners.) As a result, the conflict of interests described above is eliminated entirely. Unlike every other fund company, Vanguard is owned by its clients.Vanguard has consistently been the lowest cost fund provider throughout the last three decades. Vanguard’s funds repeatedly dominate the competition in their respective asset classes.
Jim of WalletHacks.com has accounts with Ally Invest, and likes them because of the good customer service and low fees, but mentions that it really doesn’t matter which one you choose.
it doesn’t matter which broker you pick. It is more important that you start contributing towards your retirement as soon as possible because each year you wait is another year you lose out on gains. Some will charge you $15 a trade, some will charge you $5, but those all pale in comparison to how much you lose if you let that decision paralyze you.
Phil at PTMoney.com opened his first Roth IRA a while back and also chose Vanguard because of their low fees, and because of recommendations from others.
Vanguard is highly regarded amongst most personal finance experts, bloggers, and CFPs as the best place to invest in an IRA or taxable account. When I spoke with Kiplinger and NAPFA back in January, they suggested Vanguard.
Kyle at amateurassetallocator.com has Vanguard listed as his best mutual fund company.
Vanguard appears on almost every list of top mutual fund companies. It is my personal favorite fund company and is where I hold virtually all of my mutual fund assets outside of my company-sponsored 401k. When I leave, I will undoubtedly roll over my 401k to an IRA with Vanguard, just like I did last time. Why do I like Vanguard so much? It’s cheap. Not only does it offer a wide variety of index funds to choose from, but even their excellent actively-managed funds are dirt-cheap compared to the competition.
So if you’re looking for opinions from a lot of the folks in the blogosphere it sounds like a lot of folks prefer Vanguard because of their low cost, good choice of index funds, and good performance, partly due to their low fees. I do have to say, however, that I appreciate Jim’s advice that the choice of fund company isn’t as important as getting started on investing as early as you can. Start now!
Conclusion
Personally I’m leaning towards opening an account for myself and my wife with Vanguard as pretty much everywhere I turn people are recommending them. Add to that their low fees, and fund options, it sounds like it should be a good choice. I’ll be continuing to explore my options in posts over the coming weeks.
As with anything I’d recommend that you do your own research to understand the different companies, research fees and investing options, and make sure you’re making an informed decision.
What mutual fund company or discount brokerage do you use? How do you like it? Do you have other recommendations for places to open an account? Tell us your thoughts in the comments!
I <3 Vanguard.
Also of note: They recently reduced the minimum on their "Admiral Shares" from $100,000 to $10,000. Just a couple years of Roth contributions and you can hit that level. (Admiral shares are just a different share class of their normal funds with even lower expenses. 0.07% per year for their Total Stock Market Index Fund, for example.)
Sweet! I had forgotten about that – thanks for the reminder!
Hi Peter,
I’ve been thinking about investing in an IRA. I study need to do my homework, but can you tell me if you can buy individual stocks through an IRA or only managed funds? I figure some of your readers may be curious about this.
Thanks,
Jeremy
An IRA is just a type of account. You can hold/buy just about anything in it — stocks, bonds, mutual funds, CDs, etc.
Hi Mike,
And thanks for your response. Also, can you open an IRA with your local bank or credit union? Or does it have to be through one of these trading agencies?
Jeremy
Banks will usually offer IRA accounts. Credit unions might too, but it’s a little bit less likely.
That said, banks will often only allow you to hold CDs or cash in an IRA (simply because those are the only investments the bank offers).
With an IRA at a brokerage firm, you’ll typically have access to more options.
Mike is right, a lot of people do not realize the power in a Roth IRA when you use it to invest in ANYTHING you want. It’s called a self directed IRA and you can use it from buying stocks to buying real estate. Most people think that having an IRA means plopping your money down in a mutual fund and getting the measley returns the stock market has been getting.
Buf if you take charge of your IRA you can get much higher returns and truly be in control of it.
Vanguard is the investments company I use, low expense ratios and they do waive the $20 annual fee if you choose online statements (you can still get quarterly and year end statements through the mail).
Vanguard is one of the only “customer-held companies” so their interests are with the customers.
The only alternative I recommend is Schwab’s S&P 500 index fund. It’s expense ratio is lower than Vanguard’s and has very low minimums for non-retirement funds as well.
I second Dustin’s recommendations. I use Schwab’s S&P 500 index fund. I chose it because of its low, low expense ratio and the fact that there are no fees to buy or sell. The good news? You can purchase the Schwab fund from Vanguard.
Peter,
My wife and I are at the exact same stage you are. I was thinking of going with Fidelity. My wife’s 401k match is with Fidelity but we’re opening two Roths to fulfill the 15%.
From your chart it seems Fidelity would be a better choice because they don’t have an annual fee or mutual fund commission. You can also waive the minimum balance with monthly contributions above $200.
What’s your or anyone else who has commented opinion on Fidelity? I want to get started this week…that’s my plan.
I’ve heard good things about Fidelity as well, they seem to be pretty in line with what Vanguard offers.. I do tend to be of the same mind as Jim – in that it’s important to just start investing, and sometimes we can get bogged down in the weeds of details. Look at the basic details, the fees/etc – and if they’re pretty in line – go forward with Fidelity, especially if you already use them and are comfortable with them. Anyone else have feedback on Fidelity?
Fidelity can be a great choice. Their Spartan index funds are super cheap (though they have a large minimum investment). And they offer commission-free trades on several iShares ETFs.
If the goal is to build a low-cost, diversified portfolio, you can do that at just about any discount brokerage firm these days — Vanguard, Fidelity, Schwab, Optionshouse, etc.
I have had my account(s) at Fidelity but they won’t be staying there. Consider what the investment company has interests in…what they promote…in this case, they do not support or promote conservative Christian values/politics, in fact it’s just the opposite. Too bad though.
Thanks for the feedback, they seem to be in line with what I’m comfortable with and it helps that the mimimum fee can be waived so I will move forward with them. Thanks Peter and Mike!
Don’t forget also that regardless of the brokerage house you choose ETF’s in general have lower costs and fees that mutual funds, they trade like stocks and sometimes outperform their mutual funds counterparts.
You can also open up an account with Vanguard and buy Fidelity funds from there and vice versa. The reality is that it won’t matter much who you go with because they offer very similar services. You will be better served by using your time to set up a diversified portofolio and most importantly make an assett allocation choice that is right for you.
Good article, thank you.
My wife and I have most of our investments with Vanguard: ROTH IRAs, 403(b)s, ESAs and 529s (Utah Educational Savings Plan). The cost of Vanguard Mutual Funds is a key component and they offer very good diversification. For Retirement accounts, we used a combination of Target Retirement Funds, but we looked to match them to our Asset Allocation instead of the Year of Retirement, which I think are too aggressive.
The annual fee can be waived if you get online statements but the minimum for investment for IRA is $3,000.
Hey everybody,
I am brand spankin’ new to investing and I honestly don’t know much about anything, but I’ve been researching people’s favorite places to open Roth IRA’s and Vanguard definitely has won out in votes. I’m going on a 1.5 year mission for my church in a few months and I want to start and IRA, but I’m not sure how well that will work with me going to be gone for that long. I don’t know a whole lot about the investing part, so would I just pick the things I wanted to invest in and then while on my mission it’s just a self-managing thing? I really don’t know much so anything you can tell me would be great! I read the comments and those helped a lot with other questions I had – thanks!
Kelsey,
As long as you decide what funds to invest on, you don’t need to do anything once you do the deposit. Think of it as a long term investing (as of years/decades). You do not need to be watching it constantly – John Bogle says “Buy and Hold”.
Just make sure you are diversified and have a good asset allocation. For starters, LifeStrategy or Target retirement are recommended since they have good diversification in a single fund. We have part of our investing in LifeStrategy 2020 but we will retire in 2035, and the the reason to use 2020 is asset allocation.
You have to read a few books, but for starters I’d recommend “The Smartest investment book you will ever read” by Solin; The bogleheads guide to investing and of course, The little book of common sense investing by Bogle.
I have an Roth IRA with Scottrade and a big money trading account with trademonster. I like the trademonster account much better and have been thinking of transfering my scottrade account to trademonster. Great article. Thanks for sharing. I love Dave Ramsey also. He is so genuine and helpful.
When I was in college I started my Roth with Scottrade because only $500 was needed to get going and many funds had no transaction fees. But they had no way to make contributions without mailing in checks or going to the stores and I didn’t make enough money to do direct deposit. When I graduated I moved to Vanguard because I’m a huge fan of their products and the company. The rollover was kind of confusing but they do have dedicated staff that do a lot of the work for you. I haven’t looked back and keep a Roth and traditional IRA with them now.
I’ve been with TD Ameritrade and Scottrade for my IRA. TD Ameritrade is the way to go IMO.
Personally I have a problem with all funds. When I was younger our company gave us a brochure enticing us to invest so much a year for 5 years. They claimed when we retire we would have 1 million. Well fast forward and I neve saw anything close to those gains. I always have done much better with individual stocks and I was in some good mutual funds. The problem is if a few go up and a few go down they cancel out and when you have a big market downturn all your gains pretty much go bye bye. Unless you can perfectly time buying low and never buy high of course. Most people don’t. So again you end up buying insanely high, buying some low and it all cancels out.
As for what I am considering now I like Motif and if Vanguard is your thing you can buy a vanguard motif. The big players are nice, but they got to be big players by excuse me – screwing people.
Peter,
Schwab charges a $15 commission for mutual funds. I work for an investment firm and have to adjust the accounting entries for all our mutual fund trades by $15. They also show up as a $15 “commission fee” on our final trade tickets.