Hi everyone, I'm new to this site and to investing. I have just opened an account for my IRA, but have no idea where to start. I am just turning 30, and will be able to max out my IRA this year. I have very little knowledge about diversifying...can anyone out there help me get started?
Howdy, Gompers.First useful lesson: if you go with mutual funds, you can accept higher turnover (how often they buy and sell) because you don't get hit with the resulting annual capital gains.Second useful lesson: most people are probably best off in an S&P 500 index mutual fund. To outperform that takes some work and knowledge, and many funds do not achieve it.Third useful lesson: mutual funds are (mostly) naturally diversified, so they are one good way to start out diversifying. We all define diversification differently. For some, it means having money in both equities and fixed income as well as real estate. For others it means a diverse collection of the US stock market. For some (myself included) it means diversification throughout the world.Fourth useful lesson: don't invest beyond your risk tolerance. Before you buy something, ask yourself how you'd feel if it took a 10% poooooop the very next day--because it might. If the answer is 'no fear--I'm in for the long haul', then you are probably okay.Fifth useful lesson: never pay a mutual fund load. Just do not.Good luck and welcome. You're getting on during a period when we are going over a potholed, gravel road, so buckle up and hang on.
Of course you'll want to take advantage of some of the educational material here at the fol, e.g.:http://www.fool.com/school/basics/basics.htm?source=InvAghttp://www.fool.com/school/13steps/13steps.htm?source=InvAgFor what to do right now with the IRA funds, I'd recommend an index fund such as VFINX or VTSMX (pick one), bought directly from Vanguard. (And, in order to avoid fees, sign up for electronic delivery of statements.) Buying VFINX or VTSMX is something that I don't think you will regret. I think you'll never sell it. It gives you immediate diversification and allows you to benefit from the market's--historical and expected--growth. Most actively managed mutual funds fall short of these index funds anyway, so you wouldn't be missing the boat with them. Definitely a good place to start. (As your portfolio grows, you might want to consider international investment, small cap investment, etc., but these index funds are, IMHO, a good start toward a growing portfolio.) --SirTas
Once you learn more about your risk tolerance consider some of Vanguard's lifecycle funds or target retirement funds.They are not perfect but a great place to start.Before you invest don't blindly use your projected target date.Do some research.If your situation is complex consider an hourly financial planner.www.GarrettPlanningNetwork.combuzmanmembership disclosure
I agree with what has been said above. Indexing is king with very few exceptions. Look to Vanguard or Fidelity and open your IRA directly with whichever you select.To add to the diversification discussion -- indexes (and most actively managed funds) are diversified within themselves and within their sector (that last part is an important point). If you buy the Vanguard Total Market fund listed above you will be diversified throughout small, mid and large caps -- although many would argue that it underweights smaller-cap stocks. The Vanguard S&P 500 index is great, but it's only large-cap stocks. It's important to at least hit small-caps and neither option exposes you to foreign markets.You should probably start out with one of the two funds mentioned above and then add some small-cap and/or international exposure. For international you should look at the index funds and you might consider DODFX if you can get in before it closes. If you are pretty risk-tolerant you could probably do quite well with 33% in a large-cap index, 33% in a small-cap index and 33% in an international fund (index or DODFX).
I agree with all prior responses. I made the mistake early in my investing experience of buying & selling individual stocks. Luckily, I kept the bulk of my savings in index funds, & would have been even better off had I kept it all there until I bothered to educate myself about equity investing.Byron
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