| The best investment out there is | | | | A: My method is invest in U.S.-based funds first, |
| (IMHO)stock-based index funds. If you are closer | | | | and from top to bottom. It took me several |
| to retirement age, then you need to research | | | | years to purchases funds in all of these classes. |
| bonds, but otherwise stock Index Funds are the | | | | Stock Index Funds Question: Ok, but what |
| place to start. | | | | happens when the value of a fund within a class |
| I invest in funds that are linked to indexes (or if | | | | exceeds its target allocation? |
| you prefer, Indices... I can roll that way too, dog!) | | | | A: Well, first...THAT'S GREAT!!! It means that you |
| What's an index? An example of index is the S | | | | are making money!!! Don't worry about it. |
| and P 500...basically it is a system of tracking 500 | | | | You re-balance once per year. I keep a |
| stocks and their performance as a benchmark of | | | | spreadsheet in which I enter the total amount of |
| overall market performance. | | | | money invested and then calculate the target |
| Ok, now that you know all about indexes [indices], | | | | percentage and compare that to the actual |
| I will say I like index-based funds because: | | | | amount of money I have in the fund. |
| * Fund Managers attempt to beat an index | | | | If I have too much money in a class, I sell shares |
| (generally the S and P 500) and most of them fail | | | | of that fund class. If I don't have enough in a |
| to do so. So if you do as well as the index, you | | | | class, I buy more shares of that fund class. I only |
| are getting a better return than most managed | | | | do this once per year in order to keep my |
| funds. | | | | transaction fees minimized. |
| * The manager of a fund has to get paid. An | | | | Some people re-balance every three years...try it |
| index fund does not have a manager, so the | | | | both ways...but I recommend at least this |
| expenses on managed funds are generally higher | | | | checking once every year. |
| than on index funds. | | | | Stock Index Funds Question: What is a |
| Ok, so now you have a clue about what you | | | | transaction fee? |
| want to buy, namely: Stock-based index funds. | | | | A: Every time you buy, sell, or exchange funds, |
| So, you might be thinking, Which funds should I | | | | you are charged a fee (these vary by broker and |
| buy? That's why I like you so much, reader, | | | | fund). |
| because you ask such wonderful questions! | | | | Stock Index Funds Question: Do I have to pay |
| This brings up the wonderful topic of Where to | | | | taxes when I sell? |
| put your money, which is otherwise known as: | | | | A: In a taxable account, YES! That is why |
| (Drum roll, please) | | | | tax-advantaged accounts are so cool. |
| Stock Index Funds: Asset Allocation! | | | | And another reason to only re-balance once per |
| Stock Index Funds: Scenario #1: | | | | year. You really want to hold onto a fund for at |
| Stock Index Funds Question: I'm busy, so I only | | | | least one year, plus one day, in order to ensure |
| have time to invest in ONE fund, any help? | | | | your capital gains taxes are at the lower |
| A: If you only get one fund, then I suggest you | | | | "long-term" rate. |
| get a fund based on the S&P 500 Index. | | | | (If you make a profit, of course, that's what |
| Most 401k plans will offer such a fund. These get | | | | capital gains taxes are all about. If you lose |
| you build-in diversity of 500 companies. Some | | | | money, that's a whole other proposition, and |
| fund ideas are: | | | | maybe a topic for another post!, but you don't |
| * SPY: ETF called Spiders. | | | | pay tax on a loss.) |
| * VFINX: Vanguard's S and P 500 Fund. | | | | Stock Index Funds Question: How much money |
| Stock Index Funds: Scenario #2: | | | | do I need to start? |
| Stock Index Funds Question: I have a little bit | | | | A: Good question!! Every fund has a minimum |
| more time to devote to investing; do you have | | | | opening investment, generally in the range of |
| any more ideas? | | | | $2000 - $3000 dollars. This is an added wrinkle |
| A: Sure! If you do a little research, you will find | | | | when trying to establish an opening position in a |
| these categories of options that are labeled Asset | | | | new fund. |
| Classes and funds within each class. Here's a | | | | You might have left over money, but not enough |
| break down of how I do my Asset Allocation: | | | | to open up a new fund. In that case, the only |
| US based funds (Domestic) | | | | thing you can do is spread out that extra money |
| US Large Company Funds: 20% | | | | in the funds you already own and wait for them |
| US Large Value Funds: 20% | | | | to grow. |
| US Small Company Funds: 10% | | | | You see, once you have a position in a fund, you |
| US Small Value Funds: 10% | | | | can add to it in any amount, small or large. |
| Foreign Funds (Overseas) | | | | For example, if I already made my initial |
| Foreign Large Funds: 15% | | | | investment in VFINX for $3000, and I want to |
| Foreign Large Value Funds: 10% | | | | add $1000 the next year, I can do that. But, I |
| Foreign Small Company Funds: 10% | | | | can't take that $1000 and invest it in a new fund |
| Emerging Market Funds: 5% | | | | if the new fund has an initial investment of more |
| Stock Index Funds Question: How do I find good | | | | than $1000. |
| funds of each class? | | | | If you don't have any funds at all, and you are |
| A: I'm glad you asked. You should do the research | | | | looking to get your first one, but you don't have |
| and find funds that have a low expense | | | | the minimum amount to open that position, you'll |
| ratio...lower is better, because it is the money you | | | | have to either find a fund with a smaller opening |
| pay to own the fund. | | | | investment, or just hold on to that extra money |
| I did a little research (not using my broker, so you | | | | until you do have enough to get into to the larger |
| can too) and found out that Vanguard has a good | | | | ones. |
| link that shows the different funds (ONLY that | | | | THAT's it...I used this method to built my core of |
| they sell, of course). | | | | investments...now I am doing the explore...where I |
| Stock Index Funds Question: I don't have enough | | | | buy stock in great companies...but that is another |
| money to invest in all of these funds. Which funds | | | | article for another day! |
| should put my in money first? | | | | |