I am a beginner investor(no prior experience) and I am interested in buying the Vanguard Total Stock Market Index fund(VTSMX) which has initial investment of $3,000 minimum. As I understand, you need to hold the investment in some kind of account like an IRA or a Roth. I understand the fundamental differences/benefits between traditional and roth but most articles suggest to put in the max $5500 every year. What I don't understand if the mutual fund I purchased is connected to the Roth, why do I need to keep putting money into the Roth every year? Basically what's the connection between the investment(index fund and the initial $3000) and money in Roth ? Would it be the same if I made no investment and just keep putting $5,500 every year to the Roth ? If someone can give me a complete overview of how retirement accounts and investments are connected, it would be helpful.

  • This fund is not limited to an IRA (Traditional or Roth).
    – FrankRizzo
    Commented Jan 8, 2019 at 3:06

2 Answers 2


I see no indication in Vanguard’s description of the fund that requires that you hold it in an ordinary IRA or a Roth. I believe that you could decide to hold it in an ordinary after-tax personal account if you wish.


most articles suggest to put in the max $5500 every year. What I don't understand if the mutual fund I purchased is connected to the Roth, why do I need to keep putting money into the Roth every year?

You don’t need to keep putting in money every year to maintain an ordinary IRA or a Roth or even an ordinary after-tax personal account. If you think that your initial investment, just $3000, will be plenty to retire on, by all means stop. I am retired myself and $3000 wouldn’t last for two weeks!

You are advised to invest the maximum every year so that you will have enough to retire on when the time comes. Since you are inexperienced, I assume that retirement is a long way away. There will be market recessions, inflation, Social Security may be higher or lower or discontinued by the time you are ready to retire. There are many unknowns.

The one thing that you do have control over is how much and how often you save. The sooner the better.


The "amount" in your investment account denotes the current value of its assets. If the account simply consists of cash and does not bear interest, its nominal value would not change (e.g. if you put in $3000, it would just stay at $3000).

However, you can choose to hold other assets in your account, such as mutual funds, bonds, stocks, etc. In this case, your account portfolio would consist of all of these assets, and its value would be the sum of the individual asset values.

When you transfer cash into your account, your cash is used to purchase the assets you've decided to include in your portfolio. Then, as the value of those assets change over time, you will see the value of your portfolio change accordingly.

Finally, when you decide to withdraw money from your account, some of the assets in your portfolio are sold, and the resulting cash from the sale is transferred to you.

The process for doing all of this varies depending on the investment company you use. In your example, if you would like to put $3000 in VTSMX, you might go into your investment account and say that you would like to transfer $3000 from your checking account, and purchase $3000 worth of VTSMX.

Or, you might be able to indicate asset allocations, in which any deposits are allocated according to your allocation. For example, if you deposit $1000 with the following allocations:

40%: VTSMX
40%: VGTSX
20%: VTIP

then your $1000 would be broken up and used to purchase $400 of VTSMX, $400 of VGTSX, and $200 of VTIP. These assets would now be added to your portfolio.

  • Can you explain the $5,500 limit every year for Roth ? If I initially transfer 3000 to my roth account today, does that mean I only have $2500 remaining that I can put into the roth ?
    – Jenna Maiz
    Commented Jan 29, 2018 at 0:34
  • 1
    The limit applies to the current tax year, so if you put in $3000 today for tax year 2018, you can only put in $2500 more for tax year 2018. You are able to make tax year 2018 contributions until the tax filing deadline of the following year (April 15, 2019). Also note that these limits are different if you make over a certain amount of money, or if you are over age 50.
    – yoyoyango
    Commented Jan 29, 2018 at 1:05
  • 1
    @Jenna Maiz: To explain the "why" of the limits, the government does not want high-income earners putting all their money in an account that's shielded from tax. The limits are calculated so that typical middle-income people can accumulate a good retirement nest egg, but not a lot more than that.
    – jamesqf
    Commented Jan 29, 2018 at 4:17

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