Start A Roth IRA With $50 At T Rowe Price

2009 November 20
by Kyle Bumpus
from → 401k/IRA

One of the most common reasons people cite for why they’ve yet to start a Roth IRA is high initial mutual fund minimums.  Vanguard is a great mutual fund company, but most Vanguard funds require an initial investment of at least $3,000 (except the STAR fund, of course), which is beyond the reach of many investors, particularly those just starting out.  Furthermore, current Roth IRA contribution limits make constructing a diversified slice n’ dice portfolio virtually impossible.  With only $5,000 per year to play with, savers are able to buy at most 1 or 2 funds per year.  If your asset allocation is anything like mine and contains 9 or 10 different funds, it could take a while to round out your portfolio.

Start A Roth IRA Cheap At T Rowe Price

Enter T Rowe Price (TROW),  which for the past several years has offered a program allowing you to start a Roth IRA with as little as $50 so long as you agree to participate in an automatic investment plan, contributing at least $50 per month to your new IRA.  Almost everybody can afford to invest $50 per month, so there’s really no excuse not to start saving for retirement right away.  While Vanguard is my favorite, T Rowe Price is a well-regarded fund company in its own right.  T Rowe Price’s fund expenses tend to be higher than their Vanguard counterparts, and T Rowe is known more for its actively-managed funds than its index funds.  Still, the ultra-low minimums more than make up for the higher expense ratios, especially since the difference in expenses amounts to literally pennies with balances that small.  Besides, you can always roll over your Roth IRA to Vanguard after your account has grown large enough.

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2 Responses
  1. 2009 November 20
    Eric Smith permalink

    I am intrigued. However, two questions.

    1) What funds (preferably index) at TRP would you recommend?

    I have and continue to contribute on a monthly basis to a Vanguard STAR Roth IRA and my wife has her pension in a Vanuard Small Caps Index Fund; she works for the local government here and gets a certain percentage of her paycheck matched by her employer every two weeks, regardless of whether she contributes to it or not – which she does, of course. It is my goal to (slowly and correctly) create a solidly allocated asset portfolio and while I have the small caps covered with her pension and the STAR fund is 60% Stocks (16% Foreign), 32% Bonds and 6% Cash, I am wondering what Roth IRA fund I can invest in with TRP that would provide more balance? (I know that I will just be moving it later on when it meets the minimum for a Vanguard Fund, but any direction you could provide would be greatly appreciated.)

    2) Once I get it to the threshold for a Vanguard fund, beyond the two I already have funds going into (STAR and Small Caps Index), what Vanguard fund would you recommend?

    Many Thanks and Happy Holidays,

    Eric

  2. 2010 September 12
    Muneer permalink

    Depending on your age, 60% stocks and 32% bonds is a reasonable allocation of assets although the risk is much higher. You should also consider more fixed income bond mutual funds that grow on the power of compound interest. CNN has an article on best mutual funds to invest in here http://money.cnn.com/magazines/moneymag/bestfunds/2009/index.html

    Once you choose a company, you need to decide which funds to invest in. You could simply pick a retirement fund for your projected retirement year. T Rowe Price has a Retirement 2040 fund, for those who will turn 65 in 2040. These types of funds change their overall investment portfolio from mostly stocks to a more conservative mixture closer to your retirement year.
    Source: http://www.definerothira.com

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