How should a college student invest her funds inside a Roth IRA?

My daughter is opening her Roth IRA with $3K. She is 19 years old and in college. Where is the best place to put her money? We were thinking Target date funds, but we could use some advice.

Investing, IRAs
Answers
Sort By:
Most Helpful
last month
100% of people found this answer helpful

Your daughter has a very long investment horizon and should be able to bear some risk. I'll assume this is her first investment and there are no other assets. $3,000 is a starter portfolio so you should be cognizant of costs like commissions. I would recommend one position, a stock index fund, for now. Vanguard's target date fund for 2060 is 90% stocks anyway and the target date structure adds a bit of cost. Additionally, as she starts saving her own money outside the Roth IRA, it get cumbersome coordinating target date holdings with the rest of her portfolio.

Given the amount invested, it makes sense to keep commissions low or zero. You can invest in Vanguard's Total Stock Market index (VTSMX) in a Vanguard account. Schwab has a commission free stock index fund (SWTSX) that you can trade in a Schwab account. Both of these funds give you broad exposure to the US stock market. Fidelity has its own stock index fund on its platform.

Reinvest the dividends and capital gains distributions so idle cash does not accumulate. As time goes on and money is added to account, you can look to other asset classes like foreign stocks or bonds.

last month
last month
last month
last month