Regarding Roth IRAs: Simply Putting Money into a ROTH IRA Does NOT Invest that Money. You Also Need to Allocate Those Funds!

by Homitu​

I wanted to just make this short PSA to potentially prevent other investors who are new to ROTHs from making the same noob mistake I made.

Following the advice learned from years of lurking on this sub, I opened a Vanguard ROTH IRA a little over 2 years ago. I ultimately ended up contributing the max 2 years in a row. I kept monitoring the balance and saw that it didn’t seem to be growing too much, but figured that was just a combination of the current market going up and down + my monthly contributions.

Turns out the funds by default just sit in a money market holding account, NOT being invested. You have to manually allocate your funds to a specific (or a combination of) investment/target retirement accounts! Once you select your investment accounts, you can have your monthly contributions automatically go there instead.

I’m sure this is super obvious for the majority of you, but sadly I didn’t know about it. Hopefully someone else can learn from me and not the hard way. Don’t miss out on months or years of potentially growing and earning that compound interest like I did!