 |
Bogleheads
Investing Advice Inspired by Jack Bogle
|
| View previous topic :: View next topic |
| Author |
Message |
Ron N
Joined: 29 Jul 2010
Posts: 3
|
 Posted: Thu Jul 29, 2010 8:22 pm Post subject: Index Funds |
 |
|
First off,
hello everyone this is my first posting on Bogleheads. Im glad to be here and I look forward to gaining valuable information.
Im looking to put $200 toward index funds. Can someone give me some information on what to expect and the process i might need to take. I have stocks in my brokerage acct already, Im looking to add index funds. If my question sound a little stupid, sorry. |
|
| Back to top |
|
 |
lmpmd
Joined: 18 Jan 2009
Posts: 259
|
| Posted: Thu Jul 29, 2010 8:45 pm Post subject: |
|
|
Where is your brokerage account at? What company runs it? Is it Vanguard or some other company?
Some financial institutions require a minimum. Check with your financial institution about the minimum. At VG there's a 3K minimum for the S&P 500 index fund:
https://personal.vanguard.com/....IntExt=INT |
|
| Back to top |
|
|
jday
Joined: 26 Jun 2010
Posts: 4
|
| Posted: Thu Jul 29, 2010 8:47 pm Post subject: |
|
|
There's nothing exciting to expect. You can probably buy shares in a mutual fund as easily as you can buy a stock, and you can probably do it through your current broker.
However, you may need to save some more money before you invest. Most no load funds (funds without buying fees) require a minimum investment of several thousand dollars. |
|
| Back to top |
|
|
nisiprius
Joined: 26 Jul 2007
Posts: 9706
Location: North America; Western Hemisphere; the Earth; the Solar System; the Universe; the Mind of God
|
| Posted: Thu Jul 29, 2010 8:59 pm Post subject: Re: Index Funds |
|
|
| Ron N wrote: | | Im looking to put $200 toward index funds. Can someone give me some information on what to expect and the process i might need to take. I have stocks in my brokerage acct already, Im looking to add index funds. If my question sound a little stupid, sorry. |
The only stupid question is the question you don't ask.
"Index funds" are not a kind of investment as such, they're a way of making certain kinds of investments. A stock index fund is a way to invest in stocks, a bond index fund is a way to invest in bonds, and so forth.
Index funds are a kind of mutual fund. Most mutual funds are actively managed, meaning the fund manager tries to pick stocks that he thinks will do better than the market as a whole. Bogleheads believe that this doesn't work. Index funds "passively" track the market as a whole. If you want to know why Bogleheads think this is better, read "The Little Book of Common Sense Investing" by John C. Bogle.
You need to tell us a little more about your investment goals and why you want to "add index funds." You don't just want to add "index funds," you want to add a fund that tracks some specific index--the total stock market, or the total bond market, or international small-cap stocks, and you can't short-circuit the step of deciding what to invest in!
Don't be afraid to call your brokerage, brokerage reps answer the phone quickly and are very patient with new investors' questions. A brokerage may not be a good place to get investment advice, but they will certainly walk you through the details of how to place an order, what the fees are, and so forth.
A problem you will run into is that many mutual funds have a minimum initial purchase to buy into the fund. The minimum varies from fund to fund, but $2,500 or $3,000 is typical. Once you've bought the fund, you can add small amounts to it, but you need to start with that minimum.
With $200 to invest, you will have to work around the problem and I know of two ways to do it. One is to invest at Schwab, which has a number of Schwab index funds which you can buy with a minimum of $100, provided you buy them at Schwab. And they are pretty good index funds. There may be other brokerages that have similar deals.
The second is to buy an ETF, or "exchange traded fund." I don't want to get into the minutiae of how an ETF is different from a mutual fund right now. The differences are not very important. From your point of view, the most important difference is that ETF purchases have much smaller minimums, usually one "share" which is often worth around $50 or so. So you can definitely make an ETF purchase for less than $200.
But there's a catch. Just as with buying or selling stocks, there is often a commission for an ETF purchase or sale, often around $10. That means you've lost 5% of your investment right from the start, which is not good. It could easily take your $200 a full year just to earn back that commission.
Right now, there's a bit of a price war in ETFs going on, and you should be able to find some suitable index ETFs with no commission. For example Vanguard ETFs are available at no commission if you buy them in a Vanguard account. and Fidelity has a list of 25 iShares ETFs that you can buy at no commission at Fidelity.
You should talk through the mechanics of the purchase with a customer rep, and download the brokerage's customer manual if they didn't send one to you. Basically, the typical outlines of the process go like this.
If you want to buy shares of an ETF or a mutual fund, there has to be enough cash in your account at the brokerage to make the purchase. The cash must be in a designated place, usually a money market fund called the "core" or "settlement" account. If your account is showing $200 there already, then you can place the order. If it is not, you have to get the $200 there in one of several ways, each of which takes a few days.
a) You can sell $200 worth of something that's in the account, and wait for the sale to "settle." If what you're selling is shares of an individual stock, I think usually that takes 3 days.
b) You can mail the brokerage a check, and they usually provide forms you need to fill out to show your account number.
c) You can transfer the money electronically from your bank if you set that up with the brokerage.
Now, you have $200 at the brokerage, you are ready to buy the mutual fund or ETF by "placing an order." These days, probably most people do this online. You can do this over the phone--you want to be clear-headed and you should probably write down the ticker symbol of the fund or ETF you want to buy, and the name, and so forth. Watch out: sometimes the "no commission" deals only apply if you place the trade online, and if you place it over the phone you might get hit with a charge of $7.95 or $10.95 or $19.95 or something like that.
You need to take your time figuring this out, and people will be able to give you more specific suggestions if you tell us what brokerage you are with, and what index you want to invest in. Most likely the answer to that last question will be either
a) the S&P 500 stock market index,
b) a "total stock market" index,
c) a "total bond market" index.
_________________
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery. |
|
| Back to top |
|
|
Taylor Larimore
Moderator
Joined: 27 Feb 2007
Posts: 9860
Location: Miami Florida
|
| Posted: Thu Jul 29, 2010 9:41 pm Post subject: A very nice post |
|
|
Hi nisiprius:
Once again you represent the Boglehead Forum at its best.
_________________
Best wishes
Taylor
The Majesty of Simplicity |
|
| Back to top |
|
|
Ron N
Joined: 29 Jul 2010
Posts: 3
|
| Posted: Thu Jul 29, 2010 11:22 pm Post subject: |
|
|
Hey thanks a lot for the information. This is the type of forum I been looking for.
Well as of now, I have a brokerage acct through Bank of America. I have some IGTE stock I purchased not too long ago in that acct. The commission fee is $10 and in Aug of this year. Merrril Lynch suppose to merge and take over BofA's brokerage customers. When it come to investing, I know a little about stocks, and very little about bonds and mutual funds. To be honest, recently I been doing a ton of research on both bonds and mutal funds. A friend of mine who's a lawyer recommend I get some index funds and basically forget all about them. That's what cause me to seek info on index funds. Then I got some info from a friend who reccommend ETF's.
As you can see I'm brand new to the investing game. I just felt it was time to start putting some of the little money I have to work. Therefore, I been doing a little fishing for info from experienced investors while also doing research on my own. One of my goals is short term income I can put toward other assets. I feel instead of having my money sit in my checking or savings acct I can be learning ways to put that money to work rather than just let it sit. Granted, I don't have a lot of money. I know there are still ways to increase my net worth with the little money I have.
I also thought about cd's and money markets as an option.
Once again, thanks for all the information I really feel thankful to hear all you guys thought out opinions. |
|
| Back to top |
|
|
Clumsum
Joined: 01 Oct 2007
Posts: 43
Location: Champaign, IL
|
| Posted: Fri Jul 30, 2010 12:47 am Post subject: |
|
|
| Nisiprius, I just want to second Taylor's reply. What a well thought out reply. Thanks for your input time and time again. |
|
| Back to top |
|
|
lmpmd
Joined: 18 Jan 2009
Posts: 259
|
| Posted: Fri Jul 30, 2010 6:24 am Post subject: |
|
|
| Ron N wrote: | Hey thanks a lot for the information. This is the type of forum I been looking for.
Well as of now, I have a brokerage acct through Bank of America. I have some IGTE stock I purchased not too long ago in that acct. The commission fee is $10 and in Aug of this year. Merrril Lynch suppose to merge and take over BofA's brokerage customers. When it come to investing, I know a little about stocks, and very little about bonds and mutual funds. To be honest, recently I been doing a ton of research on both bonds and mutal funds. A friend of mine who's a lawyer recommend I get some index funds and basically forget all about them. That's what cause me to seek info on index funds. Then I got some info from a friend who reccommend ETF's.
As you can see I'm brand new to the investing game. I just felt it was time to start putting some of the little money I have to work. Therefore, I been doing a little fishing for info from experienced investors while also doing research on my own. One of my goals is short term income I can put toward other assets. I feel instead of having my money sit in my checking or savings acct I can be learning ways to put that money to work rather than just let it sit. Granted, I don't have a lot of money. I know there are still ways to increase my net worth with the little money I have.
I also thought about cd's and money markets as an option.
Once again, thanks for all the information I really feel thankful to hear all you guys thought out opinions. |
I know it's not hugely liked here, but I'd recommend Tyson's investing for dummies and mutual funds for dummies. It helped me lots when I was a beginner. It's great starting point. Especially read the sections on advantages of investing in mutual funds and downsides of investing through your own picking of individual stocks or using newsletters by experts to pick individual stocks. You'll see he's not a huge fan of that. |
|
| Back to top |
|
|
ruralavalon
Joined: 02 Feb 2008
Posts: 1034
Location: Illinois
|
| Posted: Fri Jul 30, 2010 7:01 am Post subject: |
|
|
Welcome to the forum  .
Nisiprius gave a nice introductory explanation on index fund investing. I suggest reading The Bogleheads' Guide to Investing for a very good overview which is easy to read and understand.
For the amount of money you are talking about, you might consider Schwab for their very low initial minimums required, only $100. They have some very low-expense mutual funds such as --
Total Stock Market, http://www.schwab.com/public/s....m_nm=SWTSX ;
Total International, http://www.schwab.com/public/s....m_nm=SWISX ; and
Total Bond Market, http://www.schwab.com/public/s....m_nm=SWLBX .
Overall I prefer Vanguard funds but they almost all have have $3k initial minimums, and these Schwab funds have very low requirements for initial investments.
_________________
"Everything should be as simple as it is, but not simpler." - Albert Einstein |
|
| Back to top |
|
|
nisiprius
Joined: 26 Jul 2007
Posts: 9706
Location: North America; Western Hemisphere; the Earth; the Solar System; the Universe; the Mind of God
|
| Posted: Fri Jul 30, 2010 7:40 am Post subject: |
|
|
| Ron N wrote: | | The commission fee is $10. |
Keep that fee in mind when making small investments. If it costs you $10 each time, you are losing 5% if you invest $200, 1% if you invest $1000, 0.1% if you invest $10,000. You want to discipline yourself to save up in a boring old bank account so that you can make as few purchases as possible and buy bigger amounts at a chunk.
If you are investing small amounts--and I'm afraid amounts under $1,000 are "small"--you probably should start by making a list of mutual funds and ETFs that your broker will let you invest in for no fee at all. | Quote: | | When it come to investing, I know a little about stocks, and very little about bonds and mutual funds. |
You will hear a lot about "asset allocation." The three basic asset classes are stocks, bonds, and cash. (Most people start investing knowing something about cash and a bit about stocks). The big things you need to think about are your savings goals (often retirement), your savings rate (usually "as much as can possibly stand to save and a little bit more,") and what percentage of your total portfolio should be in each of the three asset classes.
It is the size of the three asset class pie slices that are important, not the form or packaging in which you buy them. If you keep everything at one brokerage the statement will probably show you a pie chart; pay attention to it.
Most of the mutual funds you hear about are stock funds. That means they're a way of buying stocks--the same asset class as the individual stocks you already own. ETFs are a somewhat new kind of mutual fund that is packaged and sold in a slightly different way from traditional mutual funds. | Quote: | | To be honest, recently I been doing a ton of research on both bonds and mutual funds. |
Good, but you need to back up a bit and widen your focus to "doing research on investing itself." | Quote: | | A friend of mine who's a lawyer recommend I get some index funds and basically forget all about them. That's what cause me to seek info on index funds. |
This friend is wise. "They"--the financial industry--wants you to be constantly worrying and fearful about your investments and think you need to monitor them 24/7 and react by doing something every time you see something in the news. Don't fall into that pattern. | Quote: | | Then I got some info from a friend who reccommend ETF's. |
ETFs and mutual funds are just two very slightly different ways of doing the same thing. | Quote: | | I feel instead of having my money sit in my checking or savings acct I can be learning ways to put that money to work rather than just let it sit. |
Watch out! It is not a question of "putting it to work instead of letting it sit." It is a question of "risking it in hope of reward, instead of letting it sit." Investing in stocks is a calculated risk, but it's risk. It is partly a gamble, even though it's a good gamble with the odds in your favor.
It doesn't matter whether your stocks are individual stocks, a "diversified" mutual fund, or the best ETF in the world, the risk is always there. Most Bogleheads think young people should risk some of their long-term savings in the stock market.
Never let yourself think that a mutual fund or an ETF is just a savings account on steroids.
_________________
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery. |
|
| Back to top |
|
|
pkcrafter
Joined: 04 Mar 2007
Posts: 3097
Location: CA
|
|
| Back to top |
|
|
bobby g
Joined: 04 Nov 2009
Posts: 8
|
| Posted: Fri Jul 30, 2010 8:28 pm Post subject: |
|
|
| ( 40% Ttl Stk Indx 20% Intl Index 40% Ttl Bnd Mkt ) Brother--purchase Dan Solin's book..."The Smartest Investment Book You'll Ever Read.." End Of Story. |
|
| Back to top |
|
|
Ron N
Joined: 29 Jul 2010
Posts: 3
|
| Posted: Sat Jul 31, 2010 12:07 pm Post subject: |
|
|
| Thanks a lot guys, i really appreciate all the information. Special thanks to you nisiprius |
|
| Back to top |
|
|
Index Fan
Joined: 07 Mar 2007
Posts: 1385
Location: The great Midwest
|
|
| Back to top |
|
|
|
|
You cannot post new topics in this forum
You cannot reply to topics in this forum
You cannot edit your posts in this forum
You cannot delete your posts in this forum
You cannot vote in polls in this forum
|
Powered by phpBB © 2001, 2005 phpBB Group
|
Wiki
FAQ
Search
Memberlist
Usergroups
Register
Profile
Log in to check your private messages
Log in
