This is my first Roth IRA. I am putting $5500 which is the maximum annual contribution I can make.

I was planning to apply the 3 fund portfolio technique by investing this money proportionately in Total US Stock market fund, International Stock market fund and U.S Bond market fund.

Does it make sense to diversify to such an extent or I should simply put the money in any 1 index fund and then diversify as and when I put more into the Roth account?

  • 1
    Do you have any other savings/investments in addition to this Roth IRA (like a 401k)?
    – minou
    Commented Nov 24, 2017 at 14:03
  • Congrats to this step!
    – Aganju
    Commented Nov 25, 2017 at 0:37

3 Answers 3


It varies.

Depending on your brokerage, they may charge you per transaction, so the more transactions, the higher the cost. Though this (from what I've seen), is uncommon with many index funds. In terms of how aggressive you want to be with your investment varies on your comfort with risk, timeline of investment and many other factors beyond the scope of this question.

The biggest issue you may need to be aware of is if you are looking at mutual funds, they may have minimum investments. Depending on what that minimum investment is set to, you may not be able to split your $5500 into more than one fund.

A lot of this comes down to the specific funds in which you are anticipating investing, as well as the service you use to do so (Fidelity, Vanguard, etc). Ultimately, diversification can be a lot safer, but there are logistics to consider. Personally, I began with a target fund (a mutual fund with adjusted risk based on the estimated year of retirement) and add additional mutual funds, stocks and ETFs as time goes on.

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    +1 for an otherwise well articulated answer. In my opinion, target date fund brings higher expense and results that are often far from what one was promised. An awful invention. Commented Nov 24, 2017 at 14:25

It depends on how much diversification you think you need and what your mutual fund options are. For instance, picking an index fund already provides a fair amount of diversification, especially if you select a Total Market type of index (readily available from Fidelity and Vanguard, and many other fund families). Are you looking to balance domestic vs. international investments? You may want to add an international index fund to the mix. Feel that a particular sector has tremendous potential? Add a sector fund. This investment mix is up to you (or your investment advisor).

However, depending on your Roth IRA mutual fund choices, some of these funds may have minimum investment requirement - $3k to open a fund's account, for instance. In that case, you'd have no choice but to put your entire investment into one fund, and wait for subsequent years where you'd be able to invest in other funds after providing additional contributions and/or reallocation any growth from your initial investment.

One thing to look at is whether you have an option of putting some of your contributions into a money market account within the Roth IRA - you can then reallocate funds from that account into another fund after you can meet the minimum investment requirement.

However, in my opinion, if you start out by investing in a solid, low-cost index fund from a reputable mutual fund company, you've already picked up most of the diversification you need - a single fund is enough.


In addition to the points made in the excellent answers provided by kchason and JWB, you should keep in mind that several IRA custodians charge a per mutual fund IRA administration fee of $20 or $25 for each mutual fund in the IRA with small balances, say $10,000 or so. This fee can either be paid separately to the IRA custodian (it does not count as a contribution) or be deducted from that mutual fund which reduces your return (and this fee payment does not count as a distribution either and so there is no penalty for premature distribution etc). So, if your IRA custodian has this kind of fee structure, you might want to wait off for a year or two before diversifying your IRA into more than one mutual fund.

Incidentally, while many mutual funds have minimum investment requirement of $3000 or so, they often offer $1000 minimum investment for IRA accounts.

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