I am almost a virgin to investing. Is there anything to absolutely avoid? I will be using new money from a savings account (2.8%) and want to set-up a Roth IRA.
I am almost a virgin to investing. Is there anything to absolutely avoid? I will be using new money from a savings account (2.8%) and want to set-up a Roth IRA.Things to absolutely avoid:1. Paying a sales charge ("load") for an index fund. There is no reason to do this, yet some fund companies persist in charging sales loads.2. Buying a fund with excessive expenses. Believe it or not, mutual funds that track the same index can have widely different expenses, including operating expenses and 12-b1 (advertising and distribution) expenses. One of the biggest reasons index funds have beaten actively managed funds -- by a country mile -- is low expenses (other advantadges include tax-efficiency, and excellent performance). Make sure your index fund has low expenses.Vanguard opened the first index fund in 1975, and is the industry leader in index funds. They also do not charge any sales or 12-b1 charges, and they have rock-bottom expenses.Presumably, money in a Roth IRA is presumably going to sit and cook for awhile, so you may wish to consider a broadly-based index. John Bogle's (chairman of Vanguard) favorite index fund -- mine, too -- is the Total Stock Market Index Fund. This fund -- ticker=VTSMX -- emulates the performance of the Wilshire 5000, the entire US stock market. If you invest in this fund, then you can "go fishing", and not have to worry about switching between large cap vs. small cap, growth vs. value, etc. (hint: people who switch often underpeform).That's my story, and I'm sticking to it. Good luck!
Oops, I omitted the obvious:http://www.vanguard.comAlso,http://www.vanguard.com/educ/inveduc.htmlhas the overall, best repository of online information for investor education (sorry, Motley Fool is an excellent site, but it's second in this category)
I'm new to these message boards and investing - they are great. Just out of curiosity, I checked VTSMX on www.bigcharts against the S&P 500 for both 1 year and 5 years andthe S&P edged out the VTSMX.Dave
I'm new to these message boards and investing - they are great. Just out of curiosity, I checked VTSMX on www.bigcharts against the S&P 500 for both 1 year and 5 years andthe S&P edged out the VTSMX.DaveYes, the SnP 500 has beat the entire market because investors have favored the large cap stocks recently. There are pundits who say the worm will turn, and small caps will outperform large caps. What will actually happen? I don't know. That's why I think VTSMX makes a great core holding -- you get about 75% SnP 500 and 25% small cap index.Over the longest scales of time, the performance of the SnP 500 and Wilshire 5000 has been virtually identical. So if you don't have to make the decision -- which is better, small caps or large caps -- and you stand to get about the same performance, why not take the entire market? VTSMX is the ultimate "send in your money and go fishing" fund.
Thx Ed, the timing of your response is perfect for me. I currently have my entire portfolio between the S&P 500 and the RP4. I want to get a "little" bit in the NASDAQ and I'm too new to pick individual stocksI loved the Vanguard educational URL in your previous response - thx again !!Dave
Buy and read a copy of "The Only Guide to a Winning Investment Strategy You'll Ever Need" by Larry E. Swedroe (T-T Dutton, 1998).Despite the exaggerated claim of the title, this is the book on index investing and asset allocation.Worth a hundred times its price ($ 24.95 ).