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Automated (robo-advisor) setup checklist and basics


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Congrats on completing your rollover! You’re done with the hard part. Now, let’s make sure your IRA is set up to achieve your retirement goals.

To help get you started, we’ve made a to-do list for your new IRA and answered a few common questions.

Automated (robo-advisor) IRA checklist:

  • Check the results of your portfolio risk toleranceWhen you opened your IRA, you likely took a test to gauge your risk tolerance. This is a short set of questions asking you about your investing behaviors when the market declines, or in other situations. Do you agree with the results? This determines your asset allocation — i.e. for aggressive growth, balance, or cash preservation. As a rule of thumb, the further you are from retirement, the more growth-oriented your IRA portfolio should be. Periodically revisit your portfolio allocation to make sure it is still in line with your age and retirement goals.
  • Look into your investment expense ratiosMutual funds and ETFs will have an expense ratio that indicates how much you’ll pay in fees to invest in the asset — the higher the expense ratio, the more you pay in fees. You’ll want to make sure the fees in your portfolio are not too high. As a rule of thumb, a mutual fund charging more than 1% would be considered on the higher end. ETFs should have lower expense ratios (Fidelity’s popular SPY has an expense ratio of 0.09%). The good news is most providers are now using low-fee funds, but it’s still a good idea to take a look.
  • Plan your future contributionsRemember, you can keep contributing to your IRA each year. Try to avoid waiting for the end of the year to contribute – the earlier you contribute, the more time your assets have to grow. Just make sure you review the IRA contribution rules to stay within IRS guidelines.

Finished with those tasks? If so, sit back and let your automated IRA handle the rest. It’s still a good idea to periodically review your account to make sure everything is in order.

IRA basics and some common questions

Q: I transferred funds into my new IRA – is my money automatically invested? 

A: Not necessarily. An IRA is an account, not an investment. If you have an automated account, the investments will be made for you. However, you will likely need to take a risk tolerance questionnaire first so your IRA knows how to allocate your assets. This depends on the specific robo-advisor, so make sure you double-check to make sure your funds have been invested.

Q: What is asset allocation? What do I need to know? 

A: First, asset allocation is just how your funds are split across different investment types. There is no single right allocation strategy – the details will depend on your personal circumstances and risk tolerance. Since you chose an automated IRA, allocation decisions will be made for you. However, it’s still important to understand the basics of allocation strategy so you can confirm that your account is in line with your goals:

  • Stocks, bonds, cash, and more: Generally, your portfolio will be made up of stocks (for higher growth), bonds (for more conservative growth), cash (for liquidity), and maybe some alternatives like cryptocurrency. So, in practice, your allocation will be split among these types of assets.
  • Diversification is key: Diversifying your investments across different asset types is a smart way to reduce your risk exposure. Your automated IRA will take care of the work for you, but you can still review your portfolio to see how it’s being diversified
  • Mutual funds and ETFs are a strong foundation for your IRA: Unless you are a full-time investment analyst, you probably don’t have time to research and monitor a full portfolio. Mutual funds and ETFs can do a lot of the work for you – they’ll keep you diversified and can deliver healthy growth.
  • Age is just an (important) number: If you’re young and far from retirement, you’ll likely want to optimize your IRA for growth; this means more investment in stocks (e.g. an S&P 500 ETF). As you get older, you may want to lower your IRA’s risk with more investment in bonds and cash.

If you’re interested in learning more, check out our curated selection of retirement resources to help you through the retirement planning process.

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