I don't know much at all about the stock market, and don't want to learn. I am thinking about putting some fixed amount of money per month in a single index fund (a large, broad index fund).
Is this enough in terms of diversification, given my other investments? Goal is to either:
1. Be able to take the money out in short-medium term (3-6 years maybe) as a down payment for a house 2. Go "all the way" and provide funding for an early retirement.
Is contributing $100ish per month through a standard online broker (scottrade, etrade, sharebuilder, whatever), to a single index fund a smart choice for somebody like me?
Some base stats: Age: 26 Immediate liquid capital: low 5-figures, enough for 6 months of living, in a random high-yield savings. 401k contributions: ~10k/year
The obvious "put more in 401k" I don't think applies to me. I am already contributing a pretty substantial amount, and I would like to potentially have access to the money much sooner than a 401k would allow. Picking a single index-fund seems to make sense for me, since I'm going to be doing repeated small contributions, and thus will save on brokerage costs.
AAAAAAAAND I'm rambling. Any advice would be appreciated.
I put my notes on that page, but the real book is really worth reading. It sums up the wisest advice about passive investing so well.
Don't go with one fund. Do three:
#1 = An index fund representative of the US stock market in its broadest terms. (Fidelity: FSTMX, Vanguard: VTSMX)
#2 = An index fund representative of the international stock market in its broadest terms. (Fidelity FSIIX, Vanguard: VGTSX)
#3 = An index fund representative of the US bond market in its broadest terms. (Fidelity: FBIDX, Vanguard: VBMFX)
ASSET ALLOCATION:
LOW RISK = 14% stocks, 6% int'l stocks, 80% bonds
MEDIUM-LOW RISK = 28% stocks, 12% int'l stocks, 60% bonds
MEDIUM-HIGH RISK = 42% stocks, 18% int'l stocks, 40% bonds
HIGH RISK = 56% stocks, 24% int'l stocks, 20% bonds
(NOTE: all stock-holdings are 70% domestic, 30% international. Only choice is how much are stocks and how much are bonds.)
If interest rates go up a lot in a year or two will my share price drop a lot and cancel out any gains from interest?
I use Vanguard. Vanguard has some of the lowest cost index funds. The only downside is they all have $3000 (or more) initial limits. Oh and there are generally no transaction costs with Vanguard, so you could do $100 a month via direct deposit and personally incur no fees.
That's what ETFs are for, among other things.
> there are generally no transaction costs with Vanguard
(but you do lose that part w/ any ETF)
You really need to do better research, your statement that you don't want to learn about the stock market is a good way to guarantee that you never really make the kinds of returns you should. If there was a reliable, easy no-knowledge way to grow your investments, people would already be doing that.
A better option may be to look at some money market accounts. We have accounts with Ford Motor Credit and GMAC (now Ally). Check out http://www.ally.com/money-market-account/index.html it's not going to be the highest possible return rate, but there are no fees for "investing" your money, the funds are liquid, and as you get to higher balances you can get better returns. This is where we keep our "accessible" funds (low 6 figures).
Also, I'm not sure how much you're contributing to your 401K, but it may be worth bumping that up as well. You should probably at least be doing 10% of salary.
High-yield CDs would also be something to look at.
In short, for the dollars you're talking about, I would NOT consider anything that charged a transaction or maintenance fee, it would eat up any potential earnings.
I think the OP is talking about index funds, not stocks. If you invest in the fund that your broker manages, there usually isn't such a "purchase fee" for index funds, only some of the more risky funds that want you to demonstrate that you're willing to eat some losses in hopes of a bigger payout later. The bigger fees tend to be associated with more active management, which generally doesn't apply to funds that simply track an index.
I've never been charged this transaction fee on Fidelity Spartan 500 (or whatever it is called now), for example. Vanguard also has a pretty good reputation for their low- or no-fee funds.
This is just an amount that, for our purposes, is enough to cover most random unanticipated issues without keeping too much money uninvested.
http://www.iwillteachyoutoberich.com/blog/the-worlds-easiest...
"First, I would max out any 401(k) match that my company provides. Second, I’d max out the $5,000 for my Roth IRA. Third, I’d max out the rest of my 401(k), up to $15,000. Finally–if your employer doesn’t offer a 401(k), you’re not employed yet, or you still have money left over–I’d open a regular, taxable investment account and put money there in stocks, index funds, etc.
Why max out your Roth before your 401(k)? Well, there’s a lot of dorky debate in the personal-finance world, but the basic reasons are taxes and tax policy: Assuming your career goes well, you’ll be in a higher tax bracket when you retire, meaning that you’d have to pay more taxes with a 401(k). Another common reason for the Roth is that tax rates are considered likely to increase. Remember: Your 401(k) money is taxed at the end, while Roth money is taxed right away and then grows tax-free."
Think it won't happen? Social security benefits weren't taxed until 1984.
EDIT: Also, if you're currently raising a family and/or paying for kids' college, it's very plausible and reasonable that you'll be in a lower tax bracket when you retire.
Another nice thing about a Roth IRA is that you can withdraw all the principal (the part you already paid taxes on) early with no penalty. (Actually, you can withdraw the interest from individual accounts -- you just can't withdraw more than you put into ALL your Roth IRAs.) Although my bank seems to not understand this very well, and the government forms aren't very clear on it either.
In theory, the stock market should be a place where companies can raise money to carry out enterprises that return more money to the stock holders. In order to be able to raise money from more people, rules are applied that make sure the powerful and rich don't rip off the weak; this is how the original stock markets, certain coffee houses in London and Amsterdam, fell upon the idea of only admitting members who agreed to record all of their transactions upon a chalk board on the wall, open for all to see.
In the current reality, companies don't pay dividends, when you buy the stock the money you pay is not going to go to the company to fund any enterprise, and well connected people at Goldman Sachs employ "high frequency trading" which is essentially shill bidding in an open-outcry auction.
The people who thought "high frequency trading" was OK are still in charge of the stock market; I'm not sure if they currently claim that is stopped or not, but it doesn't matter, the people who failed the test of allowing it in the first place are still in charge. Had they been selling cattle as a licensed auctioneer, and allowed that sort of thing to go on, they could go to jail.
Other places to put your money could include government bonds; you might look at the inflation protected series of bonds. You could simply keep your money in an FDIC insured savings account. As long as you are thinking you might need the money in 3 to 6 years, anything else seems foolish.
As for the people talking about not taking the time to learn, I understand that I'm not going to have crazy returns or anything like that. I just want an investment vehicle that will outperform basic savings accounts and such, and, hopefully, beat inflation.
Also, as for people saying "don't put money in the stock market if you need it in 3-6 years." I certainly won't need it; I was more emphasizing that I want something sooner than 401k, and potentially would like to have it available that soon. T
he more realistic scenario is I use it as a gap retirement fund. I'm 26 now, and would be happy to retire in 25-30 years. This means I need 10-15 years of gap money before 401k becomes viable.
Vanguard has been mentioned multiple times in this thread. I used to have a 401k with them, with a previous employer, but I didn't pay much attention to their offerings. For passively dumping small amounts of money into a small set of ETFs monthly, do they offer a superior service to some of the other online brokers that I mentioned?
If you will need the money in 3-6 years you should not put it in the stock market. If you want to fund an early retirement then there are a lot more variables into this equation that you do not seem to take into consideration. What is "early"? How much money will you need into retirement? What other source of income besides savings will you have during retirement? Do you intend to raise a family? Etc. It is impossible for anyone to answer these questions for you. This is why you should learn about the stock market, and about personal investing in general, if you want to make informed decisions about making your money work for you.
I very strongly suggest that you read "A Random Walk Down Wall Street" by Burton Malkiel.
ConsumerReports.org usually has a pretty good list of low load, no load index and mutual funds that they suggest. They are a non profit, and I'd been consistently pleased with their advice over the years.
Check out Permanent Portfolio if you have more money.
Get into real estate if you can. I participated in the last great real estate run-up and benefited greatly.
Anyone have any experience with it while not being a us citizen?
E.g. Work in the US for some yrs and then leave for good.
