Where do I start with Index Funds?

[snapcracken]

As a college student, I have a scholarship covering my tuition and my parents are covering my food and housing, so most of the income from my current part time job goes directly to my savings account. I have about $5k sitting there gathering very little interest, so I've been thinking about investing it in an Index Fund, as I've heard those are a good way to gather return on investment without having to care about play the stocks game. Where do I start? What do I need to do to set this up? Some Googling returns a bunch of results saying various things, but it's hard to tell which of these I can trust and which are using SEO to get me to make an investment that favors the site owner/article writer, rather than being actually helpful.

 

[Minilla]

Index funds only ? Just do ishares . Easy peasy.

Wouldn't invest it now though ( in the stock market anyaway) , massively overpriced

 

[Sectorseven]

You can start a cash account with any discount broker.

The SPY is the oldest index, but you might want to look into a managed ETF, like from Vanguard. Of course, right now there are lots of individual stocks that are outperforming the index.

 

[snapcracken]

Index funds only ? Just do ishares . Easy peasy.

Wouldn't invest it now though ( in the stock market anyaway) , massively overpriced

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What would you recommend I invest it in then? I just have this money sitting in a bank account with like no interest.

 

[Minilla]

When markets tank, you know a few things wil happen for sure price wise - yen/CHF to strengthen massivley , which you can make a big profit if your smart and have time, also gold price, bond prices etc, theres always a clear trend to follow, but its timing is diffiult.

Im not saying markets will crash now but price earnings ratios are through the roof and I wouldnt take the risk over a a possibloe 10-15% right now. Wait 4-12 months for the big plunge and buy at a large discount.

 

[Deleted member 9932]

What's your plan? Where are you from? If the idea is to let it grow for 20-30 years, buying now isn't really a problem.

With 5K I wouldn't really diversify a lot of the portfolio and would probably put it all in one fund (the decision depends of the risk).

 

[Deleted member 4367]

Index funds only ? Just do ishares . Easy peasy.

Wouldn't invest it now though ( in the stock market anyaway) , massively overpriced

Click to shrink...

The price of the market is dictated by so many different things and so many brilliant people that it takes a special kind of cockiness to declare unilaterally like this in a random forum thread that it is massively overpriced.

 

[RedValkyrie]

Make your have enough set aside as in an emergency fund (a few months of expenses).

You're young so put the rest in an index fund that tracks the S&P 500. Don't worry about whether the market is overpriced or not.

 

[TarpitCarnivore]

When markets tank, you know a few things wil happen for sure price wise - yen/CHF to strengthen massivley , which you can make a big profit if your smart and have time, also gold price, bond prices etc, theres always a clear trend to follow, but its timing is diffiult.

Im not saying markets will crash now but price earnings ratios are through the roof and I wouldnt take the risk over a a possibloe 10-15% right now. Wait 4-12 months for the big plunge and buy at a large discount.

Click to shrink...

It's an index fund though, they're not trying to game the market. Funds are an easy way for someone to get their feet wet with investing.

 

[Raein]

What you want to do is start reading here: https://www.bogleheads.org/wiki/Getting_started

If you're looking into investing in Index Funds, Vanguard, Fidelity, and Charles Schwab are usually the top recommendations. I prefer and use Vanguard due to their company structure.

Before you do any investing, you should read through this: https://www.reddit.com/r/personalfinance/wiki/commontopics

Based on your situation, setting up an emergency fund should be priority number one (as it should be for pretty much everyone) probably followed by investing extra money into a Roth IRA, assuming all of your school-related expenses continue to get covered.

But again, the two wikis I linked to are absolutely excellent at setting most people on the right path to a secure financial future.

 

[RedValkyrie]

When markets tank, you know a few things wil happen for sure price wise - yen/CHF to strengthen massivley , which you can make a big profit if your smart and have time, also gold price, bond prices etc, theres always a clear trend to follow, but its timing is diffiult.

Im not saying markets will crash now but price earnings ratios are through the roof and I wouldnt take the risk over a a possibloe 10-15% right now. Wait 4-12 months for the big plunge and buy at a large discount.

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Economic fundamentals are in place have been for quite some time. I don't see why you're asking him/her to wait 4-12 months.

 

[PantherLotus]

Do we have a RetirementEra or InvestingEra community yet? looking for those too.

OP: Keep it simple. If you have 30 years, buying in an index is the way to go. Realize the index itself is already diversified in terms of stocks. The time to worry about a diversified portfolio is as you get closer to retirement, you'll want less of your retirement subject to the ups and downs of the markets. You should be able to set up that plan with whoever you go with. Something like 'at 50 i want to move x% to bonds, at 55 i want to move x% more to bonds,' and so on.

 

[Piecake]

Do we have a RetirementEra or InvestingEra community yet? looking for those too.

OP: Keep it simple. If you have 30 years, buying in an index is the way to go. Realize the index itself is already diversified in terms of stocks. The time to worry about a diversified portfolio is as you get closer to retirement, you'll want less of your retirement subject to the ups and downs of the markets. You should be able to set up that plan with whoever you go with. Something like 'at 50 i want to move x% to bonds, at 55 i want to move x% more to bonds,' and so on.

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https://www.resetera.com/threads/retirement-era-ot-how-to-invest-for-retirement.1453/

OP, you also might want to consider opening up an IRA and putting that money towards retirement. Of course, if you do that, you can't touch that money until retirement, but there are some massive benefits if you start early. I mean, at least 45 years of compound interest is just nuts.

That 5k could turn into 100k 45 years later if your average returns are 7%.

Check out the thread I linked if you want to know more.

 

[Ikuu]

 

[snapcracken]

Thanks everyone for the links. Going through them now.

https://www.resetera.com/threads/retirement-era-ot-how-to-invest-for-retirement.1453/

OP, you also might want to consider opening up an IRA and putting that money towards retirement. Of course, if you do that, you can't touch that money until retirement, but there are some massive benefits if you start early. I mean, at least 45 years of compound interest is just nuts.

That 5k could turn into 100k 45 years later if your average returns are 7%.

Check out the thread I linked if you want to know more.

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I'm majoring in Computer Engineering and have already been accepted into my school's Accelerated Masters Program, which would give me a Master's at the end of 2018. The average starting income for a CE with a Master's is about 70-80k a year and that grows to about $120k over a career, so I'm mostly not worried about retirement as of yet, since I'll have much more income to move into a retirement fund once I graduate.

 

[Deleted member 6215]

No need to over-think this at your stage in life. Keeping it real simple:

• It's always the right time to start investing. Do not wait for better conditions or try to game the system. Start saving now.
• An index fund like Vanguard's VTSMX is a great foundation and you can't go wrong with it. You can branch out and diversify later down the road.

 

[Deleted member 13131]

Since you have enough set aside, open a Vanguard IRA and invest it there. Total global stock market index would be a simple, effective way to diversify in a single fund.

 

[Kobe]

read up on Vanguard index funds that track the markets (S&P 500 being one). there are some low priced ones out there if you look around. then use a broker (i used tradeking.com)

 

[Deleted member 14887]

Thanks everyone for the links. Going through them now.



I'm majoring in Computer Engineering and have already been accepted into my school's Accelerated Masters Program, which would give me a Master's at the end of 2018. The average starting income for a CE with a Master's is about 70-80k a year and that grows to about $120k over a career, so I'm mostly not worried about retirement as of yet, since I'll have much more income to move into a retirement fund once I graduate.

Click to shrink...

Nothing in life is for certain though. Investing for retirement early and regularly can't hurt.

 

[Piecake]

Thanks everyone for the links. Going through them now.



I'm majoring in Computer Engineering and have already been accepted into my school's Accelerated Masters Program, which would give me a Master's at the end of 2018. The average starting income for a CE with a Master's is about 70-80k a year and that grows to about $120k over a career, so I'm mostly not worried about retirement as of yet, since I'll have much more income to move into a retirement fund once I graduate.

Click to shrink...

The earlier you save the less money you will actually have to put towards retirement.

 

[snapcracken]

OK, so going through most of the links I've decided a good idea would be to invest in a Roth IRA, and one that follows the three-fund rule--bonds, domestic stocks, and international stocks. Now, most of the places I see are using these three funds as recommendations:

• Vanguard Total Stock Market Index Fund (VTSMX)
• Vanguard Total International Stock Index Fund (VGTSX)
• Vanguard Total Bond Market Fund (VBMFX)

Does this mean I should invest in a Roth IRA with Vanguard, or are other entities on the table? Does it really matter that much in the end? It seems more important than the fund is making sure I get an IRA with a low cost.

 

[RedValkyrie]

OK, so going through most of the links I've decided a good idea would be to invest in a Roth IRA, and one that follows the three-fund rule--bonds, domestic stocks, and international stocks. Now, most of the places I see are using these three funds as recommendations:

• Vanguard Total Stock Market Index Fund (VTSMX)
• Vanguard Total International Stock Index Fund (VGTSX)
• Vanguard Total Bond Market Fund (VBMFX)

Does this mean I should invest in a Roth IRA with Vanguard, or are other entities on the table? Does it really matter that much in the end? It seems more important than the fund is making sure I get an IRA with a low cost.

Click to shrink...

A Roth IRA makes sense since you'll be funding your account with after tax dollars.

The Total Stock Market fund would be the ideal choice. Buying a bond fund doesn't make sense at this point in your life. You can buy that 20-25 yrs from now.

 

[snapcracken]

I've set up a Roth IRA with Vanguard. I'm a bit lost on how I set up where that money goes, as during the sign up process the website broke and I didn't get to see anything after allowing online access.

From what I can tell navigating my account, because it takes seven days or so for the money to appear in my account, I can't do anything with it yet. It also hasn't told me what rate they charge for the IRA, but I guess that'll come after I set up the breakdown? It seems the default target was dictated by my age, and it's 90% stocks and 10% bonds.

This whole thing is kinda a mess. On top of the actual financial structure being very obtuse, the UI and system on Vanguard's end isn't the best either.

 

[SRG01]

Some index funds pay out a dividend, which trigger specific taxes in certain jurisdictions (ie. in Canada, if it's a US ETF).

Aside from that, watch out for leveraged ETFs. The swings are not for the faint of heart.

 

[Raein]

I've set up a Roth IRA with Vanguard. I'm a bit lost on how I set up where that money goes, as during the sign up process the website broke and I didn't get to see anything after allowing online access.

From what I can tell navigating my account, because it takes seven days or so for the money to appear in my account, I can't do anything with it yet. It also hasn't told me what rate they charge for the IRA, but I guess that'll come after I set up the breakdown? It seems the default target was dictated by my age, and it's 90% stocks and 10% bonds.

This whole thing is kinda a mess. On top of the actual financial structure being very obtuse, the UI and system on Vanguard's end isn't the best either.

Click to shrink...

I would advise doing a bit more reading before you jump in, so that things make more sense.

To give you the very short version: An IRA (Individual Retirement Account) is a type of retirement bucket that holds investments. It has no "rate" of its own, rather the funds you choose to purchase and put in have "rates" which are usually referred to as expense ratios. High expense ratios can leech an incredible amount of your money over the years, so many index investors strive to get the lowest expense ratios possible to keep more of their money working for them. Index funds track an entire section of the market, and some track the entire market, like VTSAX for example.

When you choose to buy, let's say $5000 worth of VTSAX, you link your bank account to your Vanguard account. Once it's approved, you place an order on Vaguard's site for $5000 shares of VTSAX, and Vanguard then deals with the transaction between your bank, your holding account with Vanguard, and the actual purchase. Once this clears, you own $5000 "shares" of VTSAX in your IRA, which has an expense ratio of .04%

 

[fookthebozos]

Robinhood app and SPY index fund to get started. You can test the waters with just about $200 if you're buying SPY.

Robinhood = free trAdes

 

[Braaier]

I've set up a Roth IRA with Vanguard. I'm a bit lost on how I set up where that money goes, as during the sign up process the website broke and I didn't get to see anything after allowing online access.

From what I can tell navigating my account, because it takes seven days or so for the money to appear in my account, I can't do anything with it yet. It also hasn't told me what rate they charge for the IRA, but I guess that'll come after I set up the breakdown? It seems the default target was dictated by my age, and it's 90% stocks and 10% bonds.

This whole thing is kinda a mess. On top of the actual financial structure being very obtuse, the UI and system on Vanguard's end isn't the best either.

Click to shrink...

Vanguard gets paid from the expense fee associated with the fund you select. Vanguard has some of the lowest expense ratios for their funds so you should be fine

 

[snapcracken]

I would advise doing a bit more reading before you jump in, so that things make more sense.

To give you the very short version: An IRA (Individual Retirement Account) is a type of retirement bucket that holds investments. It has no "rate" of its own, rather the funds you choose to purchase and put in have "rates" which are usually referred to as expense ratios. High expense ratios can leech an incredible amount of your money over the years, so many index investors strive to get the lowest expense ratios possible to keep more of their money working for them. Index funds track an entire section of the market, and some track the entire market, like VTSAX for example.

When you choose to buy, let's say $5000 worth of VTSAX, you link your bank account to your Vanguard account. Once it's approved, you place an order on Vaguard's site for $5000 shares of VTSAX, and Vanguard then deals with the transaction between your bank, your holding account with Vanguard, and the actual purchase. Once this clears, you own $5000 "shares" of VTSAX in your IRA, which has an expense ratio of .04%

Click to shrink...

That makes sense. I was under the impression after I put in money in the IRA, Vanguard would then go ahead and ask me what funds I would like to invest in.

I tried buying some VTSMX with the $1k I put in the IRA and it told me that I needed to invest a minimum of $3k...which would eat into my emergency fund, so I'm definitely not doing that. I'll try VTSAX to see what that minimum is.

Edit: that one has a minimum of $10k. It looks like my funds will end up in a Federal Money Market Fund, which I think has an expense ratio of 0.11%. The only Funds with a low enough minimum for me to invest in are all 0.13% and up, so maybe leaving it as is is the best choice right now.

 

[SRG01]

Robinhood app and SPY index fund to get started. You can test the waters with just about $200 if you're buying SPY.

Robinhood = free trAdes

Click to shrink...

Robinhood is good for stable investments, yeah. I've heard that it doesn't let you sell during volatile periods though... is that actually true?

 

[Raein]

That makes sense. I was under the impression after I put in money in the IRA, Vanguard would then go ahead and ask me what funds I would like to invest in.

I tried buying some VTSMX with the $1k I put in the IRA and it told me that I needed to invest a minimum of $3k...which would eat into my emergency fund, so I'm definitely not doing that. I'll try VTSAX to see what that minimum is.

Edit: that one has a minimum of $10k. It looks like my funds will end up in a Federal Money Market Fund, which I think has an expense ratio of 0.11%. The only Funds with a low enough minimum for me to invest in are all 0.13% and up, so maybe leaving it as is is the best choice right now.

Click to shrink...

It's possible to transfer money to a money market account in your Vanguard account before buying anything. You can side-step this if you want to by just directly saying what you want to buy. Note: You do NOT want to let your money sit in a money market fund. It's effectively the equivalent of keeping it in the bank.

And yes, most mutual funds have a minimum, with many having a $1,000 minimum.

Take a look at something like this:

https://personal.vanguard.com/us/funds/snapshot?FundId=1691&FundIntExt=INT

You can always re-organize which funds you own later on when you've invested more money. Again, please make sure you do some reading on stocks and bonds, as only you can figure out what type of allocation you feel comfortable with and what will suit your needs. I'm just trying to offer general information.

This is also a great read: http://jlcollinsnh.com/stock-series/

 

[snapcracken]

It's possible to transfer money to a money market account in your Vanguard account before buying anything. You can side-step this if you want to by just directly saying what you want to buy. Note: You do NOT want to let your money sit in a money market fund. It's effectively the equivalent of keeping it in the bank.

And yes, most mutual funds have a minimum, with many having a $1,000 minimum.

Take a look at something like this:

https://personal.vanguard.com/us/funds/snapshot?FundId=1691&FundIntExt=INT

You can always re-organize which funds you own later on when you've invested more money. Again, please make sure you do some reading on stocks and bonds, as only you can figure out what type of allocation you feel comfortable with and what will suit your needs. I'm just trying to offer general information.

This is also a great read: http://jlcollinsnh.com/stock-series/

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Thanks for the links, I'll read up on them later tonight. I think I'll wait for the money to clear the transaction process or whatever first, and then transfer them to one of the retirement funds (which when I looked were the only ones with a $1k minimum, that and the STAR fund but the latter had a much higher expense ratio).

 

[hydrophilic attack]

at 100

 

[fookthebozos]

Robinhood is good for stable investments, yeah. I've heard that it doesn't let you sell during volatile periods though... is that actually true?

Click to shrink...

Not sure about volatile periods, but I've had no trouble with buying and selling instantly when the market is open(8-5 eastern?). It does take awhile for you to get the money though, maybe 2-3 days. Like you said good for stable long term investments. Not good for day trading or options.

It's a great way to start off as a beginner. You can even put in as little as $50. I started with like $100 and loved the app. I've got a large chunk of my portfolio in there now.

 

[blinky]

Go to Vanguard or Fidelity. Put all of it in an S&P 500 index fund. Forget about it. If you're a college student, you shouldn't be trying to "time" anything or worry about excess diversification.

This is really an excellent decision on your part. Congratulations on getting an early start on investing. At some point, you will want to start doing regular monthly contributions to your fund, but that can wait until you're earning an income.

 

[Minilla]

The price of the market is dictated by so many different things and so many brilliant people that it takes a special kind of cockiness to declare unilaterally like this in a random forum thread that it is massively overpriced.

Click to shrink...

Price earnings ratio is a decent way to measure value . Nothing "cocky "about it . And plenty of analysts say a correction will be inbound 2018 or 2019.