Latecomer to investments. Any suggestions for super low fee or zero fee index funds to get started?

I have been very happy with Fidelity for almost a decade.  My criteria was different though, I wanted to have a local branch as seeing a face and a physical location are important to my sense of security.  The level of service has been excellent, and their web site is pretty easy to use.  My current rep suggested a few years ago to use them for CDs and money market savings.  With inflation CD rates have been historically high and the risk on these is zero, which is good for some situations.  Their credit card is excellent and the points can be directed to roll right into the money market.  Maybe better earners out there but this is just too easy.  And speaking of easy the FXAIX index fund has been very good to the account balance.

tester (Forum Supporter) said:

In reply to captainawesome :

IRA is like a jacket around your investment. It is an individual retirement arrangement, an IRS designation for how the money in the account is treated. You put in before tax money to get a tax deduction today. If you don't itemize, this is not a good deal because you get no benefit. When you pull the money out, it will be taxed. Also, it has required minimum distributions starting in your 70s so GOV gets their tax money. You can buy any mutual fund, exchange traded fund, individual stock or bonds inside an IRA. 
 

The Roth IRA, uses after tax money. You miss out on the tax deduction today, but the money in the account is tax free forever. Almost no one itemizes so this is far and away the best way to go under current tax code. 
 

I would not suggest a non-tax advantaged account until you have maxed out the Roth IRA and 401K. 
 

If possible, I would get sell off any any single stocks, including company stock and buy mutual funds or ETFs. 

Just a small comment: You get to deduct IRA (and pretax 401K) contributions independently of whether you itemize other tax deductions or not.  IRA deductions come right off the top.

The key to deciding which one to chose is if you think your post-retirement tax rate will be higher or lower than your tax rate while employed *and* (most importantly IMHO) that you do not pay tax on any of the ROTH IRA *gains*, while with a regular IRA you pay tax on all the money (including investment gains).  Look up compound interest over 20 or 30 years (depending when you think you will retire) and not paying tax on gains is incredible important.

Once Roth IRA contributions have been in the account for 5 years, they can be pulled without penalty which offers some nice flexibility as well.

It's not the visual guide you asked for, but this is one of the better books I've read for summarizing all this stuff:

https://www.amazon.com/Bogleheads-Guide-Investing-Taylor-Larimore-dp-1118921283/dp/1118921283/ref=dp_ob_title_bk

Note you can also get most of the info for free on the website: https://www.bogleheads.org/wiki/Getting_started

The rest of the good advice has already been posted: max out your 401k and Roth IRA, put it in index funds, and leave it alone.  Congrats on getting started!

Did not read the whole thing, but keep in mind that in some cases if your employer has you in a profit sharing plan you might not be able to fund a ROTH IRA. 
 

Profit sharing plans are usually tilted towards your employer benefit and a way to lower his tax burden. So yes, do your own thing on the side and take the profit sharing plan as an extra.  

Slippery said:

Did not read the whole thing, but keep in mind that in some cases if your employer has you in a profit sharing plan you might not be able to fund a ROTH IRA. 
 

Profit sharing plans are usually tilted towards your employer benefit and a way to lower his tax burden. So yes, do your own thing on the side and take the profit sharing plan as an extra.  

I can't seem to find any supporting information about a profit sharing plan preventing legal means or pathway to using a Roth IRA. Can you elaborate or point me in the direction of where that information is hiding?

I'm also seeing one possible benefit to doing a traditional IRA. We might be dropping a tax bracket when it's time to retire which is currently a 10 percent gap. I still need to do some head scratching to see where we might end up, but that 10 percent over 25 years could add up significantly.

captainawesome said:

In reply to BoxheadTim :

I have no desire to do any day trading and have heard nothing but great things about index funds. The only downside I've ever seen mentioned is if the market dips right when you are at the retirement age.

 

I think BoxheadTim did a good job in responding to this point so I'll just add a few of my thoughts.

First, the generally accepted term for this issue is "sequencing risk".  Although it doesn't sound too scary, as a career statistician, I know it's arguably the single biggest threat to achieving your retirement objectives.  Within limits, the sample size for initiating retirement is exactly ONE...it's a one-time discrete event in our lives and no amount of math can change that.

Additionally, as bad luck would have it our actual retirement periods, say 25ish years on average, place us close to the worst time horizon possible in term of predictability.

Things tend not to change radically in the short term (say 10 years) and macro economic mechanisms tend to regress us to the mean in the long term (say 40 years).

Essentially, sequencing risk in conjunction with how long we tend to live after retiring creates a statistical perfect storm of uncertainty.

If you look closely, you'll see the point being made in this chart where you can be relatively aggressive (high stock to bond percent allocation) in both the short term and the long term but the typical retirement period requires the most conservative allocation in order to hold risk constant.

FWIW, I'm 60 and my portfolio is 100% allocated to equities with about 92% of it being in various S&P 500 index funds.

I don't like target date funds as you're paying someone a fee to pick things that typically have their own fees (think Monty Python's SPAM song only with fees).

I don't have any bonds as they pretty much just break even with inflation and as BoxheadTim pointed out, they have failed to reduce portfolio Beta (variability) in recent years and I don't think that's an anomaly but rather the result of the Fed taking a more activist roll.  However, I've been debt free since May of 2022 and I consider the 100% equity I have in my home to quasi serve as a bond position.

I have two daughters and my legacy plan effectively pushes my time horizon out to a point of good statistical confidence.

Basically, I consider my eventual death to be a trivial event and pull my planned draw rate down from the industry standard of 4.00% to 3.50%. 

Here are some rough back of the napkin numbers for a 100% equity portfolio with an effectively infinite time horizon...

• 4.00% draw rate = 95% confidence that you'll die before you run out of money.
• 3.75% draw rate = 95% confidence that you'll die with the same amount of principle you had when you retired.
• 3.50% draw rate = 95% confidence that you'll die with the same amount of principle you had when you retired after adjusting for inflation.

Out of all the available options (buy some $hity annuities and/or buy some $hity bonds), I like living in a world that doesn't end when I do which logically takes me to a place where I always have a fairly aggressive portfolio that I always draw modestly from.