How to: Set Up A Roth IRA Three Fund Portfolio at Vanguard

How To: Set Up A Three Fund Portfolio at Vanguard

I was making a Plan for Stacey and she got to a point where it was time to set up a Roth IRA with a three fund portfolio at Vanguard.  That was a little intimidating for her because it was entirely new, but it’s really pretty simple to do. Just follow the steps below!

Objective: Set up a simple three-fund portfolio at Vanguard.

Why: You’re ready to start investing, but want some help setting it all up.

Step 1: Create an Account at Vanguard

First, navigate to Vanguard’s website.  If you already have an account, great – skip to the next step!  If you don’t have an account yet, click the “LOG ON” button in the top right corner:

Highlight of LOG ON button

On the next screen, click Sign up for access:

You’ll be redirected to a three step process:

Complete the above steps and log in to your new Vanguard account.

Step 2: Set Up A Roth IRA

Once you’ve logged in to vanguard’s site, expand the “Investing” menu and click IRAs: Roth & traditional.

On the next screen, click “Open your IRA today”.

You’ll need your bank’s routing number and your account number to proceed.  I suggest logging into your online banking account, but you can get this information from the bottom of a check in your checkbook, too.  On the Open an account screen, click Continue.   

Things you'll need to set up a Roth IRA

There’s another four step process, but it’s pretty quick.  First select “Retirement” and “Roth IRA” and click Continue.

You’ll have a few more windows confirming your personal information – verify and update as needed and keep clicking continue.  During the “Establish Funding” step, I suggest you select the option to Reinvest your dividends and capital gains unless you have a specific reason not to do so.

You’ll have to sign a consent to receive information via email, click through that and you’re ready for the Next Steps!

Click Continue…

Step 3: Three Fund Portfolio

You should now be able to see your new Roth IRA account on the “My Accounts” or Accounts Overview tab:

I’m going to assume you’ve made some contributions to your account, either by funding it directly from your bank or from a rollover.  If you need help with this step, you should contact Vanguard — they’re pretty friendly about taking your money!

The three funds in your target portfolio are some combination of the following:

  1. Domestic – Vanguard Total Stock Market Index (VTSAX)
  2. International – Vanguard Total International Stock Index (VTIAX)
  3. Bonds – Vanguard Total Bond Market Index (VBTLX)

Each of the above are Admiral Shares with a minimum investment of $10,000.  If you know you’ll exceed the minimum, go forth with the above.  But if you’re just starting out you might not be able to reach that value.  In that case, you have two options.  Each of the above has a counterpart with a bit higher (still very low) fee structure but a lower minimum investment of $3000:

  1. Domestic – Vanguard Total Stock Market Index (VTSMX)
  2. International – Vanguard Total International Stock Index (VGTSX)
  3. Bonds – Vanguard Total Bond Market Index (VBMFX)

Those are fine substitutes, and they’ll be automatically upgraded to their lower fee counterparts once the account value in each exceeds $10,000.  But $3,000 might still be an onerous barrier when you’re just starting out.  What should you do with your first $1,000?

Each fund also has an ETF version, whose minimum is much lower.  The minimum for an ETF is a single share!  I noted the minimum purchase next to each of these, but it will vary a bit as the price of a share varies.

  1. Domestic – Vanguard Total Stock Market Index (VTI) — $144.45 Minimum
  2. International – Vanguard Total International Stock Index (VXUS) — $54.50 Minimum
  3. Bonds – Vanguard Total Bond Market ETF (BND) — $79.26 Minimum

The process for buying ETFs is similar, though I think the mutual fund versions are easier to automate and I have more experience with them.  Exchanged Traded Funds are absolutely fine, and you should feel free to use them, especially if you’re not yet able to hit the minimum requirements for the mutual fund versions.

Stacey Buys Three Funds

Let’s show the process for setting up a new portfolio using Stacey, who requested this post, as an example.  She has a target of 50% Domestic, 25% International, and 25% Bond Market.  Let’s say she has $10000 ready to invest.  She logs into her vanguard account and clicks Buy and sell:

Next, she clicks Buy Vanguard funds.  Note, this is also the screen she could set up an automatic transaction which is a nice way to keep piling on regular contributions without having to do any extra work in the future.

To stick to her desired 50% / 25% / 25% allocation, Stacey needs to buy $5000 of domestic, $2500 of international, and $2500 of bond market funds.  But she would fail to meet the $3000 minimum required to purchase the international and bond funds.

I suggest she put all $10,000 into domestic (VTSAX), immediately qualifying for the low cost Admiral shares.  She should continue to contribute to that fund until it reaches $20,000.  At that point, do an exchange (see Exchange Vanguard funds in the picture above) and split her $20,000 into equal parts VTSAX and VTIAX.  Keep piling money into VTSAX and when it hits $20,000 again she can do another exchange to convert into equal parts VTSAX and VBTLX.  From there, she’ll make contributions to bring her accounts into balance with her target allocation.  It’s also completely reasonable to take advantage of the lower minimum investment thresholds of the investor shares and ETF versions of the same funds.

So let’s buy VTSAX.  After clicking Buy Vanguard funds, you’ll be redirected to a screen where you can Add another Vanguard mutual fund.  Click the checkbox and add VTSAX.

Enter an amount (Stacey enters $10,000) for “Buy in Dollars” and click continue.   Choose a source of funding for the purchase and Continue.

You’ll finally be on a screen that confirms “What you’re buying” and “How you’re making this purchase”.  Double check the details and click “SUBMIT”.

Conclusion

It’s important to set up a Roth IRA because tax advantaged accounts are one of the most efficient ways to build wealth for your future.  It can be intimidating at first, but the process is straightforward once you have the resolve to do it.  The most important step to building your wealth is to start saving money.  But after that, it’s to have your money start working for you with a clear and consistent investment plan.  Taylor Larimore’s three fund portfolio is as close as you’ll get to a one-size-fits-all investment plan that is simple and effective.  I hope this guide helps you put your money to work.  If you have any questions, feel free to contact me or comment below.

 

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