Dollar Jane

Lately, I’ve been thinking a lot about whether I’m really invested in the best place. My Roth is in a T. Rowe Price Mutual Fund called Personal Strategy Growth. It’s okay, about 80% stocks, 20% bonds, with an expense ratio of .86%.

The way I picked it was pretty uneducated. At the time I opened the account, I had no savings, and therefore was limited in my options. T. Rowe Price is one of a few discount brokerages that offer accounts with low opening balances (you need a minimum of $50) as long as you sign up for automatic contributions. They hit you with a fee for having a small account balance (under $2,500) but it’s better than having no retirement account at all.

Once I had settled on T. Rowe Price (chosen among other options for the very logical reason that I like their name and logo) I had to pick from their offering of mutual funds. The way I chose it, embarassing as it is to me now, was by clicking through one of those “Which retirement account is right for you?” things where you tell them your expected retirement date and it spits out a fund recommendation. I literally did no research and let the website tell me where to invest.

I’m much more savvy now. Or, so I like to think. I now know that it’s always a good idea to do a little research before picking a fund or stock. I’ve become a big believer in minding the fees.

I’m not a stock expert. I believe in low-maintenance investing, and I think there are two things to really pay attention to when choosing a mutual fund: 1) The Expense Ratio and 2) Asset allocation.

Asset allocation is simply looking at the kinds of investments you hold and figuring out how much of each you should have. At it’s most basic level, you want to look at the percentage of the fund that is invested in stocks and the percentage invested in bonds. The expense ratio tells you basically how much you pay to be invested in a fund. You want the expense ratio to be as low as possible. At least, I do.

Since I opened the T. Rowe Price account, I’ve made $4,000 in contributions. Now that I have some money built up, I feel like I have more options and it’s time to take a harder look at my fund’s performance and whether I could be doing better with a different fund. For one thing, although an 80-20 stock bond split is pretty reasonable for a young investor, I’m very young and could safely risk a higher stock allocation.

My 0.86% Expense ratio is decent among actively managed funds but doesn’t look so hot compared to the Vanguard S&P 500 Index fund’s 0.15%.

I find the Vanguard S&P 500 very appealing. I’m considering making the switch. I need $3,000 to open the account. But after looking through my current mutual fund’s fees, I’ve realized that I’ll get penalized for taking out any money that hasn’t been invested for at least six months.

Since I make a regular purchase every month, that means I’d have to stop investing in my T. Rowe Price IRA six months before I move the fund.

I’ve been thinking about my cash cushion ever since I bought the Italy plane tickets. (Oh, did I mention I was going to Italy?) I currently have just under $1,000 in my savings, half of which is in a 6-month CD. I really don’t have a lot of liquid cash available.

So, maybe after I finish my 2007 Roth IRA contributions, I’ll stop my regular investments in the T. Rowe Price account and put the money in my ING account. Then, I’ll have until April 2009 to invest my 2008 contribution. This is plenty of time to decide if I want to switch funds, and it will offer the bonus of having greater liquidity in my assets.