Today I'll be heading to the bank to deal with my newly mature cd. I'll be awash in liquidity again, but not for long. The time has come to open a Roth IRA. It's clearly the right move since I place a high priority on not starving on the streets in my old age, but figuring out what investments will best help me attain that goal is proving tricky.
Individual stocks are out, at least for now. Having led my fourth grade stock market game team to stellar returns doesn't mean I know a thing about investing for the long run in the real world. Owning the market seems like a much more reasonable approach than betting on my ability to pick winners.
So I want indexing, diversification, and low expense ratios. I'm also willing to admit that at this point in my life I'm both lazy and ignorant and probably couldn't be trusted to periodically rebalance in any sensible manner. The Vanguard Target 2045 or Target 2050 funds sound like exactly what I need, right?
Except, for one teensy little problem: that level of aggressiveness makes me nervous. I'm not sure I can stomach the risk. Much as I like to tell myself that I won't touch the money for decades, I have a suspicion that substantial losses might cause me to bail and move to something insanely conservative instead, much as my parents did with my father's 401(k) in the wake of the bursting tech bubble. Investing would be easier if I were a robot, but human frailty may have to play a role in my decision-making process.
So I'm considering a couple of other options as well. The Vanguard Balanced Index Fund is probably way too conservative for someone my age and lacks international exposure, with 60% in a total U.S. stock market index and 40% in a U.S. bond market index, but the 0.19% expense ratio seems reasonable. The Vanguard LifeStrategy Moderate Growth Fund is a fund of funds with a higher expense ratio, 0.23%, probably because is contains one actively managed fund as well as index funds. Points in its favor include keeping just 30% of its holdings in bond funds and putting about 10% into a total international stock index.
Where should I go to research things further? Do I need to talk myself out of my timidity and try the target date fund, or is it ok, as a recent New York Times article suggested, just to pick an asset allocation I can live with? Is it ok to make a decision without worrying overmuch about whether it is the optimal choice and trust as long as I don't do anything truly stupid the outcome will probably be alright?