21 y/o needing advice over index/mutual funds.

[Woolygimp]

I'm 21 years old and am looking to invest $5-$10,000 a month, but I'm not interested in trying to become a self learned stock broker at the moment. I'd rather let people who know what they are doing do the investing for me in the form of index or mutual funds.

However I have a few questions regarding how I should proceed.

Do mutual funds have any advantages over index funds, or vice versa? Do you prefer one over the other?

Would you recommend diversifying and purchasing both?

Should I purchase several different mutual funds?

Which online trading site would you recommend to build my portfolio?

Thanks in advance for answering these questions, and if you have any other tips they'd be appreciated as well.

[Eihli]

If you had browsed the forum for more than 30 seconds you'd have seen numerous posts offering the exact advice you are looking for.

Vanguard Global Equity Fund
https://flagship.vanguard.com/VGApp/...FundIntExt=INT

or
Vanguard Star Fund
https://flagship.vanguard.com/VGApp/...FundIntExt=INT

You can follow the links on those pages to learn about opening an account with them.


Mutual funds are actively managed funds. The managers try to specialize in certain things to meet the needs of the people investing. For example, Vanguard has dividend yield funds that tries to invest in companies that will show good return with high dividends. They also have a Target Retirement 2020 fund. This fund would change whichs stocks/bonds it holds and move from a more aggressive growth strategy early on to more defensive investments as the target date is reached. In exchange for having someone manage the fund you pay a fee which can be hefty depending on who you go through. Vanguard is well-known for their low fees.

An index is a group of companies that tries to track how the market, or a certain section of the market, is doing. There are total stock market indexes like the S&P 500, or indexes tracking sections like oil and gas or utilities, like the Dow Jones Utilities Index.

An index fund isn't managed, it's just buying a part of every company in an index. There are basically no fees.

[mindflayer]

Less than 1% (i picked a random small % I just guessed, but I bet it is smaller than 1%) of mutual funds will beat an Index fund (in the same field) over the long run. (30+ years)

Over a short time period, some select Mutual funds (like vanguard) will beat an index fund but if you are going to spend the time to research mutual funds, you might as well research individual stocks. I am guessing 60-75% of mutual funds can't beat an index fund over a short 5 year period.

The KEY number to look at is MER (or ER) Managment expense ratio. One of the reasons Vanguard does so well i suspect is that it has a MER of 0.72% (which is REALLY low for a mutual fund.) This is the YEARLY fee they charge your account.
If you have 120,000 in your Mutual fund and the MER is 0.72%, the ANNUAL fee is $864 !

The typical mutual fund MER is 1.5 - 2.5%.. so you would be paying upwards of $2000!! per year for them to manage your 120k.

I much prefer an index fund like QQQ which uses the top 100 Nasdaq stocks to track the Nasdaq market.
Two Main reasons:
1) they don't need to pay managers and researchers to "SELECT" winners and losers( they just pick the top 100), so they have VERY low MERs. (0.25 to 1% MERs)Looks like 0.26% but do some homework and find out.
2) you instantly know how your index is doing when you hear the news is on every hour... the Nasdaq is up.. your up, the Nasdaq is down, your down.

I have purchased mutual funds when No index was offered by my Bank. (these had to be funds RRSP qualified (similar to 401k) so I bought an Asian Mutual fund instead of index with a MER if 2.25%!!) Outside the RRSP you should still be able to find an asian index fund.

BTW Buffed recommends investing in Indexes as a third choice if you don't have the time to study stocks use his method for value investing (first choice.)

I don't think he is even recommends bying Berkshire since one share is approximately $109,000.
He also mentions that it is HARD for him to get great returns on the overall investment since his Market Capitalization is so large now; 169B.
Think if you found a $50m company who's stock was undervalued at $25m say $25 for a $50 value stock. You could buy $120,000 of it and double your money..
Buffet could find it and buy the WHOLE company,(which he usually does) but his stock value is only going to go up by a tiny fraction 25 million over 169 billion.

[RunningSixes]

just get the vanguard total market fund. once you get 100k in there, expense ratio is only .1% and it is very tax efficient

[DJSHAD0W]

must be running goot.... 10k$ a month in surplus !

NH Sir

[Woolygimp]

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must be running goot.... 10k$ a month in surplus !

NH Sir

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I have almost no expenses.

[kimchi]

I advise you dump all your cash into this guy's fund