Buying my first Index Fund

I didn't catch that but I am not convinced that a balanced fund wouldn't meet his needs.
 
TonyM said:
OK you're all going to laugh at my naivety, but here's the truth. My entire retirement find is just in the "Highest Growth" option. I don't even know what that means. I vaguely remember its stocks not bonds. In the first year I started working someone told me that was what I should do, because I (was) young and can accept the risk. I've never changed it.

They told me about this "matching" thing, where my employer matches my contribution. That seemed irresponsible to pass on, so I contributed enough to get max employer matching from my first year out of University. Later I started contributing more, because the accountant who did my tax return told me the contributions are pre-tax, blah blah whatever ok I'll increase my contribution and forget about it.

When I said that I'm conservative/cautious with my money, I should have said that I'm "conservative/cautious/clueless". My mum was a waitress, dad was a truck driver. I honestly know nothing about money except that you pay off debt as fast as you can and spend less than you earn. From the first day I started work I earned more than my parents ever did, my whole life I've felt rich, so I've never really had to care about money.

I'm very careful to compare prices when buying a washing machine, but I don't have a clue what my retirement fund is. To me, it's just a magic bucket of money. I put money in there because the accountant told me that's "sensible" and I guess that one day it will allow me to retire with more money than my parents, but that's all the thought I've ever given it.

Until this week I could not even tell you the order of magnitude of the money in my retirement fund. It just always seemed too remote, like monopoly money.

So even now, when you ask me "what are my retirement funds invested in" I realise I have no clue. The money in my savings account, I'm really careful with. Because that's my money and I don't want to lose it. In hindsight, my retirement fund has always been invested in the stock market, but I've been blissfully unaware because it never seemed real to me.

I've sleepwalked my way to near-FI. Now I just want to retire asap. It's like I've been climbing a mountain my whole life, now I suddenly realise where I am and that I'm scared of heights. I need to read a "Mountain Climbing for Beginners" manual. Thats why I'm here.
Click to expand...

If everyone in America were as clueless as you we wouldn't have any articles about a retirement crisis!

Let's see:
Live below your means
Avoid debt
Max your 401k
Take a long term view
Have the wit to seek advice
Actually act on that advice
Accomplish this from a blue collar starting point
Know that you're wife is smarter

(OK, the last one is just a good life principle...especially as it helps you avoid divorce which would greatly complicate the earlier points!)

Seriously tho: Great job!

They should put your picture on our money.

I'm glad you are engaging with that magic pile of money though. Now is the time, particularly as you are close to retirement. The "Highest Growth" option has no doubt served you well for a long time, but as you're older I would tamp that down rather quickly. Since its in your 401k, you can do this with no tax consequences.

As others have said: be deliberate, get yourself a simple asset allocation, take a long term view, stick with it.

And...continue to read this board religiously even after you invest your money. Not only is there a wealth of knowledge here but you will surround yourself with people who are prone to helping you stay the course/keep calm when the stuff hits the fan. And it will. Count on it.
 
I know it hard to release financial information on a public forum. But, many of us consider ourselves anonymous here and do post our financial info. It would be great if you could at the minimum tell us the ratio of your retirement account to your savings account. Also, find out what your retirement account is invested in and tell us. That may get you some valuable feedback.
Seems to me as others have said, you have done what many people find the hardest, you have learned to live below your means and kept yourself out of debt. Congratulations! :)
 
TonyM said:
It's not savings alone. Most of it is Retirement Funds (me and my wife), then Savings, then some individual shares (employee scheme).

Am I misunderstanding the FI formula? You include Retirement Funds in the calculation right?

My posts may be misleading because I talk about how I don't invest in the stock market, and only keep my money in the bank. But of course, I AM invested in the stock market via our retirement funds. It's not a deliberate mislead on my part, its just I've never understood how Retirement Funds work, so I wasn't aware that even though I thought I was "playing it safe" by keeping my savings in the bank, the larger portion of my total investment was actually Retirement Funds, going up and down wildly while I was blissfully unaware.

It's why my anxiousness about now buying my first Index Fund doesn't make logical sense. I've always been exposed to the Stock Market and just never paid attention because my Retirement Fund felt like some remote thing, while my bank account felt "real".
Click to expand...
This link may help you organize your investment and financial data:
https://www.bogleheads.org/wiki/Asking_portfolio_questions

When you summarize your existing assets in this way, people can make better suggestions for your new taxable investments. You're not really specifying dollar amounts to strangers, just the percentages of the total amount.

BTW, you can eliminate the special formatting [*] stuff if it doesn't work in your post.

As you can see you'll get many answers for a simple question. It will help you greatly to read a book or two that extends the successful principles you have together. Those have worked for you, and you don't need to upset that balance.
 
I've spent all my time since my OP reading the sites you all recommended and following links. Much appreciated. I came to all this late and it's great to read a systematic overview/introduction. I've also borrowed a couple of books from the library.

This is how my plan is taking shape:
1) We have made an appointment with an accountant next week, so I can run all my plans (below) past him just as a sanity check. Make sure I'm not making some terrible rookie blunder or missing a tax implication.
2) Invest 75% of our Bank Savings account in a broad EFT. Lump-sum at first and then smaller chunks over 2 years. Then after 75% of my savings are invested just keep topping up as my incoming income allows.
3) My retirement account is in a (comparatively) expensive managed fund. I'm going to switch it to an Index Fund with much lower fees.
4) I've talked to my wife about what I've learned, especially how Index Funds/EFTs are impacted by a downturn/crash in the market. When that happens we need to keep the stock invested and wait it out for the recovery (and keep investing more while I'm still working and the stock is cheap). We also need a plan to get by in the meantime (easy while I'm still working, requires more planning when I retire). My wife is smart and we are both veterans at "delayed gratification" so I'm confident we can handle it. I just don't want her to be concerned when the market crashes.

It's amazing how the Index Fund option on my Retirement account is kinda buried and hard to find. The fees on all account types are listed in a separate place to the past-performance, so it is concealed how one affects the other.

target2019 said:
This link may help you organize your investment and financial data:
https://www.bogleheads.org/wiki/Asking_portfolio_questions
Click to expand...
Thanks very much. I'm sure my wife would freak out if I posted that kind of information online. I understand that limits everyone's ability to give useful advice. I get that it's anonymous and nobody gives a damn who I am.

Baby steps. Until a week ago even I didn't know what my bigger picture finances looked like.

Closet_Gamer said:
Accomplish this from a blue collar starting point
Click to expand...
Our parents get the lions share of the credit on that one. I was given a middle-class upbringing regardless of my parent's blue-collar jobs. My peers were the children of teachers/nurses etc. All three of us kids got graduate degrees and walked into well-paid jobs.

When I was younger I believed that "self-made man" bs. Now I see that I was handed opportunity on a platter. My job was to not f**k it up. If you traced my families financial fortunes over generations, it would be clear that it's our parents that turned everything around.

The one thing they couldn't give me is an education in more advanced financial concepts. Me and my wife both believed that the stock market was a place where Billionaires got richer, and little people lost their life savings.

Any time we thought about investing we thought "What if the company we bought stock for went bankrupt and we lost everything? Too risky". Hollywood and the Media doesn't help either. They portray investors as either swashbuckling cowboys living on the edge, or heartless robots who read the Wall Street Journal over breakfast and care about the price of crude oil.

And...continue to read this board religiously even after you invest your money.
Click to expand...
That might be a step too far for me. I've gone through a financial boot-camp out of necessity, but I still have very little interest in this stuff. I'll return to this board if anything makes me concerned or tempted to change things. But I really just want to set-and-forget. Check-in with my finances a couple of times a year.
 
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Exchange Traded Fund = ETF.
Electronic Funds Transfer = EFT.
I use both in my financial dealings.

There's some truth in Tony's anecdotal stories about investing and little people, especially before index funds were invented in the mid to late 70s.

My parents had a similar mindset about investing and never really had extra money to invest anyhow. And when they inherited some Westinghouse stock from my grandparents, they just kept that for their remaining years due to its source.

But it's been a different investing landscape the last several decades, with no-load index funds and now ETFs and everything online...
 
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Hi OP I am heading to your age but I have no where enough for my FI. While others suggestions are great for index fund investors, I think you have at least another 10 years left for some higher risk exposure.

I originally also started with index fund only especially in 2018 fidelity pushed four different index funds with zero expense ratio but I later was made aware that a few industry has been and likely will be trendy for the next 20yrs.

Index funds are totally fine and auto investment feature offered by the brokers are great. I am just saying keep options open (no pun intended) while you are still young and has the tolerance for the risks. I too have maxed my retirement contributions and all the retirement portfolio (and a small portion of tax accounts) are in index funds. The other portion are in tech related ETFs. A quick review of past two years growth indicated that 25% (taxed) was responsible for the 75% investment return.

I know it is a gigantic leap from cash only from your bank to sector specific ETFs but it is still similar to index funds except that the ones with low turn over rate and low expense ratio are fewer than 500 it whole market index. In any cases, both are a lot safer than individual stocks.
 
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teetee said:
... The other portion are in tech related ETFs. A quick review of past two years growth indicated that 25% (taxed) was responsible for the 75% investment return. ...
Click to expand...
The statistics are that about 1/3 of stock picker funds beat their benchmarks in any given year, but as that compounds over longer periods like five or ten years, the percentage that beat drops and drops, easily reaching the single digit percentages when proper benchmarks and survivorship bias are considered. For example, https://www.spglobal.com/spdji/en/spiva/article/spiva-us/ , also every SPIVA report for the last 20 years.

So just buy the winners, right? Nobody knows how to do this: Dr. Kenneth French on picking a manager: https://famafrench.dimensional.com/videos/identifying-superior-managers.aspx
 
It's important to note that there's way more to index funds than just the S&P 500 and Total Stock Market.
Vanguard has over a dozen index funds, based on factors such as Size and Growth/Value. And other index funds based on sectors.
Two of my favorites, aside from VOO and VTI, are VGT and VXF.

And of course, there's good old QQQ, from Invesco, not Vanguard...
 
TonyM said:
I've spent all my time since my OP reading the sites you all recommended and following links. Much appreciated. I came to all this late and it's great to read a systematic overview/introduction. I've also borrowed a couple of books from the library.

This is how my plan is taking shape:
1) We have made an appointment with an accountant next week, so I can run all my plans (below) past him just as a sanity check. Make sure I'm not making some terrible rookie blunder or missing a tax implication.
2) Invest 75% of our Bank Savings account in a broad EFT. Lump-sum at first and then smaller chunks over 2 years. Then after 75% of my savings are invested just keep topping up as my incoming income allows.
3) My retirement account is in a (comparatively) expensive managed fund. I'm going to switch it to an Index Fund with much lower fees.
4) I've talked to my wife about what I've learned, especially how Index Funds/EFTs are impacted by a downturn/crash in the market. When that happens we need to keep the stock invested and wait it out for the recovery (and keep investing more while I'm still working and the stock is cheap). We also need a plan to get by in the meantime (easy while I'm still working, requires more planning when I retire). My wife is smart and we are both veterans at "delayed gratification" so I'm confident we can handle it. I just don't want her to be concerned when the market crashes.

It's amazing how the Index Fund option on my Retirement account is kinda buried and hard to find. The fees on all account types are listed in a separate place to the past-performance, so it is concealed how one affects the other.

target2019 said:
This link may help you organize your investment and financial data:
https://www.bogleheads.org/wiki/Asking_portfolio_questions
Click to expand...

Thanks very much. I'm sure my wife would freak out if I posted that kind of information online. I understand that limits everyone's ability to give useful advice. I get that it's anonymous and nobody gives a damn who I am.

Baby steps. Until a week ago even I didn't know what my bigger picture finances looked like.


Our parents get the lions share of the credit on that one. I was given a middle-class upbringing regardless of my parent's blue-collar jobs. My peers were the children of teachers/nurses etc. All three of us kids got graduate degrees and walked into well-paid jobs.

When I was younger I believed that "self-made man" bs. Now I see that I was handed opportunity on a platter. My job was to not f**k it up. If you traced my families financial fortunes over generations, it would be clear that it's our parents that turned everything around.

The one thing they couldn't give me is an education in more advanced financial concepts. Me and my wife both believed that the stock market was a place where Billionaires got richer, and little people lost their life savings.

Any time we thought about investing we thought "What if the company we bought stock for went bankrupt and we lost everything? Too risky". Hollywood and the Media doesn't help either. They portray investors as either swashbuckling cowboys living on the edge, or heartless robots who read the Wall Street Journal over breakfast and care about the price of crude oil.


That might be a step too far for me. I've gone through a financial boot-camp out of necessity, but I still have very little interest in this stuff. I'll return to this board if anything makes me concerned or tempted to change things. But I really just want to set-and-forget. Check-in with my finances a couple of times a year.
Click to expand...
Since you have little interest, further responses beyond this one would be pointless. Some investors choose to hire professionals for investing advice, and then go with an AUM approach. Others DIY, and set it and forget it. But it does require reading and self education to follow approach DIY. There are pitfalls to the AUM approach (and DIY), but those have been thoroughly covered in many other threads.

target2019 said:
This link may help you organize your investment and financial data:
https://www.bogleheads.org/wiki/Asking_portfolio_questions

When you summarize your existing assets in this way, people can make better suggestions for your new taxable investments. You're not really specifying dollar amounts to strangers, just the percentages of the total amount.
Click to expand...
I included complete quote above, with bolded sentence added as in the original. The limited quote you included did not fully represent what I said. Essentially, the part which interests anyone reading a thread like yours is the asset allocation. It so happens that you discovering and understanding this aspect is very important to knowing who you are as an investor, and setting goals.

BTW, your 401(k) isn't concealing anything. It's just that you are now discovering that expenses and performance are on different pages. In addition, your 401(k) has been sending you Summary Plan Description reports each year, and those also include percentages and/or dollar amounts for expenses. It does take some attention to begin noticing these things.
 
Index funds, asset allocation and dollar cost averaging are three concepts that kinda go together. Those are probably the 3 most important things I learned years ago when deciding to my own investing.
 
easysurfer said:
Index funds, asset allocation and dollar cost averaging are three concepts that kinda go together. Those are probably the 3 most important things I learned years ago when deciding to my own investing.
Click to expand...
Pretty much correct, although DCA kinda comes for free with employer plans and contributions from every paycheck.

But you forgot another important metric and that's percentage or amount of money contributed each month...
 
TonyM said:
Thanks so much everyone. I'll check out this Bogle thing.



OK you're all going to laugh at my naivety, but here's the truth. My entire retirement find is just in the "Highest Growth" option. I don't even know what that means. I vaguely remember its stocks not bonds. In the first year I started working someone told me that was what I should do, because I (was) young and can accept the risk. I've never changed it.

They told me about this "matching" thing, where my employer matches my contribution. That seemed irresponsible to pass on, so I contributed enough to get max employer matching from my first year out of University. Later I started contributing more, because the accountant who did my tax return told me the contributions are pre-tax, blah blah whatever ok I'll increase my contribution and forget about it.

When I said that I'm conservative/cautious with my money, I should have said that I'm "conservative/cautious/clueless". My mum was a waitress, dad was a truck driver. I honestly know nothing about money except that you pay off debt as fast as you can and spend less than you earn. From the first day I started work I earned more than my parents ever did, my whole life I've felt rich, so I've never really had to care about money.

I'm very careful to compare prices when buying a washing machine, but I don't have a clue what my retirement fund is. To me, it's just a magic bucket of money. I put money in there because the accountant told me that's "sensible" and I guess that one day it will allow me to retire with more money than my parents, but that's all the thought I've ever given it.

Until this week I could not even tell you the order of magnitude of the money in my retirement fund. It just always seemed too remote, like monopoly money.

So even now, when you ask me "what are my retirement funds invested in" I realise I have no clue. The money in my savings account, I'm really careful with. Because that's my money and I don't want to lose it. In hindsight, my retirement fund has always been invested in the stock market, but I've been blissfully unaware because it never seemed real to me.

I've sleepwalked my way to near-FI. Now I just want to retire asap. It's like I've been climbing a mountain my whole life, now I suddenly realise where I am and that I'm scared of heights. I need to read a "Mountain Climbing for Beginners" manual. Thats why I'm here.
Click to expand...

I really love this post! You may not have had a clue about investing specifics, but you did SO much right. Sure, you've been invested in some low-interest savings, and maybe you've overpaid on expensive funds... But you under-spent, over-saved, kept debt low, and now you're close to FI in your 40s. Good for you!
 
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I'm just impressed OP is 46yo, is mortgage free and ready to retire in 5-8 years without ever investing in mutual funds/stocks. If he's make it this far and can retire without investing in the stock market, what's the case for him to start now? He already said his wife and him are risk-averse and not interested in investing and find it stressful. Why add stress if you don't need to?
 
CaliforniaBlues said:
I'm just impressed OP is 46yo, is mortgage free and ready to retire in 5-8 years without ever investing in mutual funds/stocks. If he's make it this far and can retire without investing in the stock market, what's the case for him to start now? He already said his wife and him are risk-averse and not interested in investing and find it stressful. Why add stress if you don't need to?
Click to expand...

Hold on.
His retirement fund definitely invested in stock funds.
He just wasn't aware of it until recently...
 
teetee said:
You must be very frugal or has very high combined income because I don't see how one reaches FI with savings a lone at 45. Inflation alone can put you in a bad spot.

There is no good or bad time to start investing. Anytime is a good time as long as you keep investing money regularly into index fund. Pretend your investment is just another monthly or bi weekly expense and make it auto investment, and reinvest the dividend so you don't have to worry about any of it except complaining you do t know what it's about while throwing the annual statement into the trash.
Click to expand...


+1
 
The best time to invest was yesterday. The second best time to invest is today.
 
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