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Vanguard: How to Open a Roth IRA and start investing ASAP

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In this article, I’ll walk you through how to open a Roth IRA account and start investing at Vanguard using the following steps:

  1. Open and fund your account
  2. Choose your Target Date Fund
  3. Set up Automatic investments

Why Vanguard?

Vanguard is an awesome company to invest with, especially when it comes to offering low fee, long term investment options. The company’s founder, Jack Bogle, invented the index fund, which gives investors access to a wide range of low fee investments all rolled into 1 fund. Vanguard is the market leader for long term investors and a great company to trust with your money. 

Before we start, make sure you have at least $1,000 that you can use to fund your account. If you don’t have $1,000, don’t worry. Open an account with Fidelity instead and follow the same process. Both companies offer similar investment options, so choose the one that fits into your budget today so you can start investing right now.

1. Open and fund your account

Vanguard account open
Vanguard account requirements
  • Make sure you have all of the required info for steps 1 & 2 then click continue.
  • Answer each account question: 
    • Why are you investing? Retirement
    • Select Your Account Type: Roth IRA
    • What’s your goal for this money? Choose whatever makes the most sense for you. I chose “Growth & Income” and I also chose “Retirement/General Savings” as my source of funds. 
    • Complete your personal information
  • Fund your account: 
    • Connect the bank account that you are using for your initial deposit. Choose to transfer at least $1,000 to get the account started
    • Sign up for online access and finish the application

A little bit of waiting..

Vanguard will need to validate your bank account and then transfer the money into your new Roth IRA. This process can take a few days so make sure you set a reminder to log back into your Vanguard account in 3-4 days to complete the investing process. Move on to the next section to start picking out the investments that you will use.

2. Choose your investments

The key to investing success really boils down to “don’t put all of your eggs in one basket.”  

When investing, there will always be some risk because the economy fluctuates up and down, so your investments will as well. While the money you make year to year might change, the average stock market return is about 8% per year once you factor in inflation. 

To help you ride the wave of year to year ups and downs, you’ll want to minimize your risk by choosing investments that span a lot of industries, companies, and even economies. Doing this makes long term investing more reliable and safe, especially if you choose low-fee investments like the option I cover here.

Investing in a Target Retirement Fund

Vanguard Target Retirement Funds are investment funds based on the year you expect to retire. Vanguard manages these funds and makes sure that your investments within the fund are diverse and the risk tolerance is appropriate based on your age. These funds are super low fee with an expense ratio of around 0.15%. Investing in a Target Retirement Fund means that you won’t have to research multiple funds and choose how much to invest in each, and you also won’t have to rebalance your investments as you get older – Vanguard does all of this for you. 

  • Navigate to Vanguard Target Retirement Funds, hover over your birth year, and identify the fund that matches your age group. Take note of the fund name
  • Log Into your Vanguard account, hover over “My Accounts” and choose Buy and Sell.
  • Select Buy Vanguard funds
Buy Vanguard Funds
  • Under option 1: “Where’s the money going?” – you will see your Roth IRA Brokerage Account and your initial deposit amount will be listed under your Federal Money Market settlement fund.
  • Select Add another Vanguard Mutual Fund
  • Type in the name of the fund you want to invest in
  • Once you click on the name, fill in the “Buy in dollars” amount. Enter the full amount of your initial deposit (for example, $1,000). Click continue
  • Under option 2: “Where’s the money coming from?” – Choose From my settlement fund (which should be the default option). Click continue
  • Read through the electronic consent information and submit your order when you are comfortable with your choice.

Congrats, you’re invested!

3. Automate your investments

Now that you invested your initial deposit, it’s important to set up automatic monthly investments so you can take full advantage of compound interest – it’s like money magic for long term investors.

Vanguard set up automatic transactions
  • Hover over “My Accounts,” choose “Buy and Sell,” and select Set up an automatic transaction.
  • Click on the first option you see – Automatic investment.
  • Select Add automatic transaction, and choose your new Roth IRA Brokerage Account.
  • Move money from bank account. Right below this you will see your annual contribution limit, which will help you determine how often and how much you can automatically invest.
  • Choose the frequency and amount that works for you. Every little bit counts. You can use this Roth IRA calculator to estimate your account balance when you retire based on how much you invest each year.
  • Make sure to fill out the section Invest in these funds. Check the box next to your Target Retirement Fund, and enter the full amount of your automatic investment. This ensures that your money actually gets invested each month instead of just sitting in your settlement fund.
  • Select continue and authorize the transaction.

Now what?

You’re officially a long term investor – congrats!

All you have to do from here is let the stock market do its thing, and go on living your life. I recommend taking a look at your account once or twice a year and increasing your automatic investment amount if you can. You’re allowed to invest up to $6,000 per year as of 2021 into a Roth IRA, so try to make that a savings goal if it’s not realistic for you right now.

Once you turn 59 ½, you can withdraw the money in your account and spend it on whatever you want without worrying about taxes. And if you need that money early for some reason, check out How to access Roth IRA money penalty free.

Happy Rothing!

Disclaimer: I am not a certified financial advisor and this article is intended for educational purposes only.