new to investing, looking for a Fund

[feldo]

Hi,

Im 21 years old and want to get started in investing.

I have about 5k to invest at the moment, and plan to add another $1000 each month towards it. From what Ive read here I should look into index funds. I want something that I can add money to regularly, but is still available if I need to access it in 5 or so years

Can someone suggest some specific funds to begin looking at. Or some good websites to look at. Also what is an expected return on a good fund? How much are fees normally? Is an Index fund the same thing as a managed fund?

What funds have you personally invested in and what was the out come.

Im from Australia, so does this restrict me from investing in US based or international funds?

I know these are basic questions but any advice would be appreciated.

thanks

[gull]

Good job for asking questions and starting early.

When I first got into the stock market, I had no idea what fund to put my money in. There are so many choices, it's overwhelming. There's not a lot of easily accessible information out there, and it can be kind of paralyzing. Some people end up doing nothing instead of choosing a fund, when even a bad choice would do better than nothing.

http://altruistfa.com/dfavanguard.htm is a great website to look at to see which funds are best. It's nice because it explains each choice with logic. That website is the best I've found, and I trust the guy who runs it. You can't really judge funds by past performance, because studies have shown that funds that do well one year aren't any more than average likely to do better the next year. In fact, a study showed that only half of funds that were the top performers of one decade did better than average the next decade. Instead of past performance (which is based partly on chance), you have to choose funds by looking at their asset allocation and fees.

5k isn't a lot of money, in investing terms so you don't have a lot of options. For example, at Vanguard, you need a $10,000 minimum investment in a fund or else you have to pay $10 a year. With ETFs at a broker, you have to pay a fee every time you buy or sell. Fees are evil, and you want to minimize them as much as possible. For this reason, it's probably best to invest in a single fund - ideally a total stock market index fund so you get the most diversification.

I have no idea about investing in Australia. I looked at Vanguard's Australian webste briefly, and I really don't know what options you have or how costly your options are.

For ar US investor, I would recommend buying VTI, the Vanguard Total Stock Market ETF. It is very, very diversified and it has an extremely low expense ratio 0.07%. Actually, if you look at the website I mentioned above, this is the second choice for balanced funds (which is essentially your only/best option because you aren't investing enough money to be able to cheaply split it up among different funds). The first choice for that category is a DFA fund, which isn't available to individual investors.

For you, I guess just look for a cheap, diversified index fund and go with it.

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Or some good websites to look at.

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Vanguard.com offers a bunch of good, cheap index funds. Vanguard.com.au might too.

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Also what is an expected return on a good fund?

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I'd say a good real rate of return is 8%. Don't judge funds by how they've done in the past. Studies have shown that high returns do not persist. I.e., the top performing funds on one decade don't have a better than average chance of being the top performing funds next year.

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How much are fees normally? Is an Index fund the same thing as a managed fund?

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Fees for an index fund are typically less than .5%. Managed funds are much worse deals - their expense ratios are usually 1%-3%.

[En Passant]

I recently started a similar post. I have 5k to invest as well and Gull was kind enough to PM me with the same advice. I joined etrade 2 weeks ago and invested all 5k in VTI.

[pig4bill]

Something else you need to think about if you invest in U.S. stocks is the currency risk of the U.S. dollar vs the Aussie dollar.