Wednesday, September 4, 2013

Investing 101

Keeping it Simple Stupid. My brain likes simple things; like watching ALF reruns and eating ice-cream right out of the container. I don't need to add any complexity to my busy life. Being able to set my investment choices and ignore them is a great thing.

I use no-load stock index funds in my 401k, HSA and Roth IRA's for the bulk of my investing. Plus a few select managed funds.

Advantages of Index Funds:
  • The yearly costs are dirt cheap compared to managed funds.
  • Very few managed funds beat indexed funds.
  • They simplify your life. Setup a few funds and just check on them once or twice a year to re-balance your asset allocation.
  • They stop you from chasing returns. And buying and selling at the wrong times.
  • Index funds are tax-efficient. If you do own stocks in taxable accounts index funds will prevent you from giving Uncle Obama more money than you have to.
  • All the major investment companies offer them; Fidelity, Vangaurd, Schwab etc...
You can use just 3 funds and create a portfolio you can pretty much ignore. Here is an example for informational purposes only.
  • A Total US Stock Market Index Fund
  • A Total International Stock Index Fund
  • A Total Bond Market Fund 
So, a basic "three-fund portfolio" might consist of 60% Total Stock Market Index, 20% Total International Stock Index, and 20% Total Bond Market fund.

If your company 401k doesn't offer index funds, talk to your HR department about getting some added. My plan has some but we are switching to a new plan on October 1st that has lousy choices as far as I can tell. I will  have to figure out what are the best of the mediocre choices I will now have.

I have a few specialty funds that I have added to the mix over time, for diversity sake, but they aren't necessary.

Every 6 months I re-balance my portfolio to make sure I am still investing the way I want. Using the word "portfolio" makes it sound like I have lots of money to invest, I don't, but I like using the word anyways.

Important-the above is how I do things. Everyone's situation is different. Please do your own research and decide what is best for you.

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