what does everybody think about index funds is it worth investing in ? For someone starting out would index funds be a good place to begin?
Yes, indices are probably a good start for a beginning investor, because they take little knowledge of financial markets, and are one thing that is all but guaranteed to go up over time.
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Definitely a good idea…and I don’t (personally) think it’s a good idea for just “beginner investors”
I think they make a GREAT base to start with and keep building on top of.
Just be sure to keep your costs low…
Like a Vanguard or Fidelity fund
(Disclaimer: I work for neither of these companies and have no financial interest/gain in them, but DO have some investments with them)
It’s a good staple for a retirement type account like IRA or 401K.
Unless you have a wad of cash to invest it might make more sense to get into a few ETFs that track indices – many index funds have minimum initial investments, the lowest of which are usually $2-3K.
A good initial mix:
Total domestic stock fund: iShares Russell 3,000 (IWV), iShares S&P 1,500 (ISI), Dow Jones Total Market Index (IYY) or Vanguard Vipers Total Market Index (VTI).
Total international stock fund: iShares Morgan Stanley EAFE (EFA)
Treasury inflation-protected securities fund: iShares Lehman TIPS (TIP)
After that, if you want some diversity, try some of these:
A REIT fund: iShares Dow Jones U.S. Real Estate Index (IYR) or iShares Cohen and Steers Realty Majors Index (ICF) or Vanguard REIT Vipers (VNQ).
An energy fund: Vanguard Energy Vipers (VDE) or iShares S&P Global Energy Index (IXC) or iShares Dow Jones U.S. Energy Index (IYE) or SPDR Energy (XLE).
An emerging markets fund: iShares MSCI Emerging Markets Index Fund (EEM) or the Vanguard Emerging Markets VIPERs ETF (VWO).
Unfortunately, there is currently not an ETF that is a good un-hedged international bond mix (it needs to be unhedged to be a good currency risk hedge for you): American Century International Bond (BEGBX)
Note: I own Vanguard mutual funds in all the above categories except the REIT, for which I own the VNQ Vipers. I may change this at some point but I bought them in my 401(k) before ETFs really came out so now I just add to them…
I forgot to mention that you need to think about how your personal asset allocation strategy should look.
This is surprisingly helpful if you don’t know anything about asset allocation:
I would add that you also need to think about US v international (including a small percentage of emerging markets) asset allocation, and if you get advanced perhaps consider asset allocation into segments such as energy and/or natural resources (buying a Canadian market index fund may be a good proxy for natural resources) and real estate (like the ETFs I mentioned above).
well im 18 with about 1,500 dollars what would be some good starting points to investing?
[quote]DION88 wrote:
well im 18 with about 1,500 dollars what would be some good starting points to investing?[/quote]
what are your goals/expectations?
[quote]TheZ-Man wrote:
DION88 wrote:
well im 18 with about 1,500 dollars what would be some good starting points to investing?
what are your goals/expectations?[/quote]
well I would like to start by buying something that is low risk like an index fund that will grow over time. As I become more experienced I would like to open a brokerage account and begin to buy individual stocks. Im not looking for quick riches but instead steady growth and early retirment.
You can buy ETFs on a site like sharebuilder. Only $4 a trade. And then when you’re ready can move on to indivdual stocks. No minimums.
For your current goals this would be a fine choice. Index funds charge less fees than most mutual funds and performance can be comparable. For example, the S&P 500 index is the benchmark that most mutual funds are trying to beat, but very few actually do.
You can buy a fund like this (in fact an S&P 500 or total market index fund may work well for your situation) and not have to worry to much about losing money. Historically the stock market averaged a gain of 10% per year.
The best advice, besides “start early,” is to add money consistently. If you can put in $25 per week, which most high school or college kids can swing with a part-time job, you will get ahead much quicker. Look up compound interest calculator online and see the difference over 10 years as opposed to letting your principle just sit there.
When you have more income and knowledge it may be a good idea add in some specific stocks or funds.
Also, never trust investment advice from anonymous members of bodybuilding message boards.
[quote]DION88 wrote:
TheZ-Man wrote:
DION88 wrote:
well im 18 with about 1,500 dollars what would be some good starting points to investing?
what are your goals/expectations?
well I would like to start by buying something that is low risk like an index fund that will grow over time. As I become more experienced I would like to open a brokerage account and begin to buy individual stocks. Im not looking for quick riches but instead steady growth and early retirment. [/quote]
Is this long-term/retirement investing, or do you have other shorter-term goals for the investment? Maybe buying a house in five years or something? That will affect your asset-allocation decision. Longer term means you can take on more risk.
Yeah when your young its best to go with High Risk/ High growth. The premis being that you really have nothing to lose.
While right now 1,500 may look like a lot to lose, in the grand scheme of things its hardly a drop in the bucket.
That being said, once you have gotten older and have amassed enough to retire its best to start going into asset protection mode, and take less risk.
Diversity is good as well. While you do want to buy individual stock as you attain more money, dont use your retirment investments to do that. Keep adding to your retirment plan. By retirement plan I mean any long term investments you plan to use to retire.
That also depends on what you plan on doing with the individual stocks, are they going to be long term investments as well.
Well part of the invest would be towards a house in later years and other things not only retirement. Thats what IRA and 401 k plans are for.
Also I mentioned that I would like to buy an index fund and then open a brokerage account, but would you not do this at the same site? I am a bit confused Vanguard for instance has a s&p 500 index fund but can one also buy and sell stocks there? or should you buy a index fund somewhere then open an brokerage account from somewhere like fidelity?
[quote]Slyfan wrote:
You can buy ETFs on a site like sharebuilder. Only $4 a trade. And then when you’re ready can move on to indivdual stocks. No minimums.[/quote]
I would suggest that you contact the fund directly, without using a broker to purchase shares. T Rowe Price and Vanguard usually have low expense ratio’s with experienced management.
Go to www.morningstar.com and sign up for their newsletter. They often give a report with ratings for managers and management teams. They also provide interesting investment advice. They also seem to be unbiased.
If you buy funds through a broker, you get charged for every purchase. If you invest directly with the fund, you can set up an automatic monthly investment (dollar cost average). Set up a monthly investment at your age and you will retire early.
BTW - If you do this, many funds waive or reduce the large initial investment.
I have Vanguard and TRP funds. Indexes are the way to go.
Good luck.
John
I have a VERY limited amount of knowledge here but are index funds not generally the best choice because they tend to beat most mutual funds over a long term period…?
Like from what I’ve read it seems that fund managers are trying to achieve a better return than that of the index linked funds, but only about 50% of them manage to do it??
I do have to argue with one point: that the younger you are the more aggressive you should be with your investments. While I think this is true once you start making a steady income, I don’t know that it is when you’re just finishing highschool and have very little money to begin with.
Look at it this way: $1500 is a LOT of money for most 18 year olds. $1500 is not so much when you start making a steady paycheck; not that it’s a small sum, but it is more easily replaceable. When you invest money at that age, you are giving up the use of a proportionately more important amount of money. In other words, you’re giving up money now (when you need it) to have that money in the future, when you’ll need it less.
Rationally, of course, you could make the argument that in that case, since you’re giving up the use of the money anyway, it might as well go into the highest-risk, highest payout investments possible. The potential for it to yield large dividends in time for him to start a job and maybe buy a house, etc.
In someone that young, however, I’d really prefer to build the habit of saving and investing, rather than worry so much about getting big returns. After all, if he loses his money in four years (a definite possibility with high-risk investments), it could sour him on investing in the future. After all, it would seem like the money was lost for no reason.
Instead, I really suggest investing in something like the Vanguard Total Stock Market Index. Reasonable returns, low fees… and you can earmark the money for a vacation or whatever you want after you graduate college. It’s also a great starting long-term investment.
If I had known what I know now when I was your age I definitly would have gotten into an index fund. As you learn more about investing you can start getting more diversifed with some higher risk investments, but for now just get into an index fund and get into the habit of putting money into it every month.
to anyone who knows wha are some of the differences between the " Vanguard Total Stock Market Index Fund Investor Shares (VTSMX)" and the “Vanguard 500 Index Fund Investor Shares (VFINX)”. I was reading about them both on their website but the window closed and I am unable to open it back up.