Quote:
Originally Posted by ssww
How do you know which fund to decide to buy the first time? Do you know a lot of research before buying the initial position?
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Here, I will save you the research. If you are investing for retirement, I highly recommend a balanced fund. Balanced funds own a mix of stocks and bonds, usually 60% to 70% stocks and the rest in bonds and cash. They don't do as well when the stock market is roaring, but they hold up much better in stock market downturns. They're funds you can (and probably should) hold for decades, if not your whole lifetime.
I would be a lot richer if I would have started and stuck with a balanced fund instead of switching around from fund to fund. Inevitably, you'll buy and sell funds at inopportune times. It's the way our brains are wired. Everyone thinks they won't be the person who does that. Almost all of them are wrong (myself included).
The tricky part here is there is more than one good choice and you can obsess forever about which one is best. So I'll just recommend one. It has a low expense ratio and excellent long term returns. It isn't the absolute best in the balanced fund category, but it's typically in the top 10% of performers over long periods (10 years or more). It's been around since 1929. It has a low expense ratio of .26%, which drops to .18% once your balance hits $50,000. It's 20 year returns have actually beaten those of the S&P 500 Stock Index, with less volatility, although that may not be the case over the next 20 years. That fund is:
Vanguard Wellington.
You have to open an account with Vanguard to buy this fund at
www.vanguard.com
After you buy this fund, your focus should be on earning more and saving more, so you can invest as much as you can in the fund. Investing is fairly boring. To be a good investor requires consistent behavior more than anything else.
While not an index fund, Wellington's expenses are only a shade higher than a typical index fund (the next cheapest actively managed balanced fund, Dodge & Cox Balanced, charges .53%--more than double what Wellington charges--and it's still considered cheap compared to other funds).
The problem I have with people saying "index funds" is which index are we talking about? There are indexes for every specialized corner of the stock and bond markets these days. You can make your investing life pretty complicated with lots of different index funds if you want to. Just a small sample:
Vanguard REIT (real estate) Index
Vanguard Extended Market Index
Vanguard S&P 500 Index
Vanguard Total Stock Market Index
Vanguard Total Bond Market Index
Vanguard Balanced Index
Vanguard Mid Cap Index
etc, etc.
I think it's easier to buy one fund and get 80% of your diversification that way. Not perfect, but good enough, and simpler than putting together index funds.
I also think actively managed funds are fine if their expenses are as cheap as Wellington's. The problem is, most of them are charging .90% or more....but if you can get an actively managed fund for only a small premium, then it's worth it. Most actively managed funds would match or beat their respective index benchmarks if they charged fees comparable to Wellington.