Index Funds
- Thread starter Dot57
- Start date
easysurfer
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
- Joined
- Jun 11, 2008
- Messages
- 13,151
You want to follow more than one index and set you allocation percentages to targets you feel comfortable with. I'm invested in three index funds. A Total US Stock Market, Total International Stock Market, and Total Bond. Plus, keep some in cash too. That way, say if the US market takes a dive, you other allocations should help minimize the dive.
ERD50
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Well, if you are invested in the market, and the market takes a dive, so will your investments. There is no magic.
And your FA has no magic either. But how much does he/she charge you for that non-magic? At least you will be earning that fee back.
Most people will maintain an asset allocation of enough fixed income (bonds, CDs, cash, etc), so that they don't have full exposure to the market. That limits upside as well - no magic.
-ERD50
And your FA has no magic either. But how much does he/she charge you for that non-magic? At least you will be earning that fee back.
Most people will maintain an asset allocation of enough fixed income (bonds, CDs, cash, etc), so that they don't have full exposure to the market. That limits upside as well - no magic.
-ERD50
travelover
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
- Joined
- Mar 31, 2007
- Messages
- 14,328
As mentioned, most of us have both stocks and bonds. If stocks fall, you live off the bonds until stocks come back, which they always have. You don’t need an advisor to set up a simple portfolio. That said, you are rewarded for risk. You need to take some risk to earn enough to overcome inflation, thus both stocks and bonds.
Spanky
Thinks s/he gets paid by the post
This is similar to the 3-fund portfolio advocated by Taylor of Boggleheads: https://www.bogleheads.org/wiki/Three-fund_portfolio
pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Hopefully you realize that you are asking two separate questions.
The only way to minimize the downside if the market takes a dive is to not be in the market.... the downside is the quid pro quo for the upside.
What most of us here do is to invest invest in both stocks and bonds... usually anywhere from 70/30 to 30/70.... the bonds supply ballast and stability and the stocks provide growth albeit with volatility.
And most of us use index funds to do that... generally broad market index funds like Vanguard Total Stock, Vanguard Total International Stock, Vanguard Total Bond and Vanguard Total International Bond... with just those 4 funds you can have a very sensible, albeit boring, portfolio.
Midpack
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
To quantify what pb4uski and others have said, I’ve always thought this graphic added perspective. You can’t enjoy the upside (long term returns) without accepting downside (short term paper losses) along the way. Each of us has to choose what risk trade off we can live with, better returns means you’ll get punished more with the inevitable market pullbacks periodically. Staying the course through pullbacks is the key (simple but not easy for some), the 2008-09 meltdown showed that very clearly for those who didn’t panic sell (many/most here).
Last edited:
easysurfer
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
- Joined
- Jun 11, 2008
- Messages
- 13,151
.
Midpack
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
As their name implies, cash investments are easily redeemable with small, if any, penalties for withdrawal. Examples of cash investments include money market funds, bank accounts and certificates of deposit (CDs).
gcgang
Thinks s/he gets paid by the post
- Joined
- Sep 16, 2012
- Messages
- 1,571
Know the tax situation of any realized gains before making the move.
Does your FP do anything of value for you besides investments?
Does your FP do anything of value for you besides investments?
DEC-1982
Full time employment: Posting here.
If you look at this Vanguard mutual fund list link
https://investor.vanguard.com/mutual-funds/list#/mutual-funds/asset-class/month-end-returns
you will see four funds in the "Target Risk" section.
Life Strategy Conservative Growth (4 index funds, stock bond 40/60)
Life Strategy Growth (4 index funds, stock bond 80/20)
Life Strategy Income (4 index funds, stock bond 20/80)
Life Strategy Moderate Growth (4 index funds, stock bond 60/40)
These are examples of 4 low cost funds. Each of the Life Strategy funds invests in 4 low cost index funds, US stock, US bond, International stock, International bonds, differing mainly in the percentage allocated to the four index funds. Any one of the Life Strategy funds could be used, depending upon various factors, and you might choose one which would meet your financial goals AND lets you sleep well.
You could use the Target Date funds, listed in the "Target Date" section. You choose the fund that matches your desired stock/bond mix. They gradually become more conservative, reducing the stock allocation over time.
Or you could build your own mix, using Total Stock Index, Total Bond Index and Total International Stock Index. This requires slightly more work in terms of re-balancing, if you wish to maintain the same percentages over time. Or if you wish to have a different percentage mix.
There are so many choices.
To mention the obvious, make sure to read and understand the prospectus of whatever you choose, whether from this post or other funds that other forum members have suggested.
https://investor.vanguard.com/mutual-funds/list#/mutual-funds/asset-class/month-end-returns
you will see four funds in the "Target Risk" section.
Life Strategy Conservative Growth (4 index funds, stock bond 40/60)
Life Strategy Growth (4 index funds, stock bond 80/20)
Life Strategy Income (4 index funds, stock bond 20/80)
Life Strategy Moderate Growth (4 index funds, stock bond 60/40)
These are examples of 4 low cost funds. Each of the Life Strategy funds invests in 4 low cost index funds, US stock, US bond, International stock, International bonds, differing mainly in the percentage allocated to the four index funds. Any one of the Life Strategy funds could be used, depending upon various factors, and you might choose one which would meet your financial goals AND lets you sleep well.
You could use the Target Date funds, listed in the "Target Date" section. You choose the fund that matches your desired stock/bond mix. They gradually become more conservative, reducing the stock allocation over time.
Or you could build your own mix, using Total Stock Index, Total Bond Index and Total International Stock Index. This requires slightly more work in terms of re-balancing, if you wish to maintain the same percentages over time. Or if you wish to have a different percentage mix.
There are so many choices.
To mention the obvious, make sure to read and understand the prospectus of whatever you choose, whether from this post or other funds that other forum members have suggested.
target2019
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
What is your Asset Allocation (AA) at this time? Are you comfortable with that risk level?
Red Badger
Thinks s/he gets paid by the post
+1. This is exactly how we invest.
Not meaning to be too blunt, but if you are seriously asking this question, you have been ill served by your FA. Fire that person ASAP.
OldShooter
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Lots of good advice here. I will mention one caution, though, that I don't think has been pointed out.
We we talk here about "index" investing, most of us are really talking about "passive" investing. This essentially involves buying a little bit of everything on the belief that, like stocks, no one can predict which sectors (or countries) will be winners in the future.
The hucksters read about the "index investing" trend, though, and are busily working to capture the naive money interested in this rubric. So, beware that "index" may not be what you want. For example, take the "South China Sea Microcap Index Fund." If you can't buy that now, it will soon be invented. This type of "index fund" is really just a trap to get the naive to move from stock-pickers to sector-pickers. Neither strategy is supported by statistical data. Even S&P 500 index funds are really sector funds -- putting their owners 100% into large cap US stocks. So, your key words have already been written here: "Total US Stock," "Total International Stock" and so on.
We we talk here about "index" investing, most of us are really talking about "passive" investing. This essentially involves buying a little bit of everything on the belief that, like stocks, no one can predict which sectors (or countries) will be winners in the future.
The hucksters read about the "index investing" trend, though, and are busily working to capture the naive money interested in this rubric. So, beware that "index" may not be what you want. For example, take the "South China Sea Microcap Index Fund." If you can't buy that now, it will soon be invented. This type of "index fund" is really just a trap to get the naive to move from stock-pickers to sector-pickers. Neither strategy is supported by statistical data. Even S&P 500 index funds are really sector funds -- putting their owners 100% into large cap US stocks. So, your key words have already been written here: "Total US Stock," "Total International Stock" and so on.
Start by reading this page: https://www.bogleheads.org/wiki/Bogleheads%C2%AE_investing_start-up_kit
Really, that's the place to start. Educate yourself.
38Chevy454
Thinks s/he gets paid by the post
I agree with all of the previous replies. I will just add that boring is good. Pick your allocation comfort level, buy well diversified funds with low fees. Ignore most of the market swings. Rebalance as needed occasionally to maintain allocation. Save the 1% financial advisor fee and put that 1% back in your pocket.
ERD50
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
While that is likely a good start for some, and has good solid info, I actually think it is far too complicated and maybe off-putting for some/many people getting started.
More below....
Yep. Really all anyone getting started needs to know (IMO) is that many, many studies find that a simple 2-4 broad based index fund portfolio ( A Total Stock Market fund, a Total Bond fund, throw in some International and/or REIT if you like, but don't get hung up on it) will probably do as well or better than the active manager you may pick. Asset allocation isn't all that sensitive - start anywhere from 40/60 to 90/10 to get started.
That's a good start, then read/study more as you go for finer points. No need to spend 1% AUM for what will likely be inferior performance.
-ERD50
W2R
Moderator Emeritus
This is pretty much what I have, too, with one tweak in that I have 30% Wellesley. With a fairly conservative 45:55 asset allocation, I think I can get through another severe market crash without freaking out and selling low. At least, I hope so. It's never easy.
Bold added:
It doesn't take long to learn all you need to know. There are plenty of good books/guides in the FAQ section of this board. I'd recommend "Work Less, Live More" by Bob Clyatt, "The Bogleheads Guide to Investing," or "The Little Book of Common Sense Investing" by John Bogle.
+1 on all the above. But don't neglect the bold portion. Verifying to yourself that this easy, low-cost approach really works and is likely much better than the results you'd get if you hire "expert" help is (IMO) key to avoid being victimized by the slew of advisors/brokers/etc who are always circling above, waiting for a chance to swoop in. They have well-practiced sales pitches and lots of glossy brochures, and your best defense is a thorough grounding in some basic principles.
It doesn't take long to learn all you need to know. There are plenty of good books/guides in the FAQ section of this board. I'd recommend "Work Less, Live More" by Bob Clyatt, "The Bogleheads Guide to Investing," or "The Little Book of Common Sense Investing" by John Bogle.
easysurfer
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
- Joined
- Jun 11, 2008
- Messages
- 13,151
Definitely agree about it's never easy in the event of a severe market crash. Plus, better knowing I had an asset allocation strategy than "Oh, I should have done some reallocating" as the severe crash is happening.
Ed_The_Gypsy
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
There are single funds that you may find acceptable. Wellesley and Wellington are not index funds but they have long records of consistency. Wellesley is 1:2 equities:bonds, and Wellington is 2:1. The more equities, the more it will drop when 'the market' drops, but the more it will grow over time. Expect drops of value as long as 5 to 7 years, but the dividends keep coming.
Similar threads
