index funds http://www.wisebread.com/taxonomy/term/7707/all en-US The Top 5 Index Funds to Own Now http://www.wisebread.com/the-top-5-index-funds-to-own-now <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/the-top-5-index-funds-to-own-now" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/man_reading_paper_000031064290.jpg" alt="Man deciding which index funds he should own now" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Can you tolerate some market volatility? Is investing in passively-managed index funds still part of your diversification strategy? Hang in there if it is, because <a href="http://www.wisebread.com/3-steps-to-getting-started-in-the-stock-market-with-index-funds">index funds</a> are still a good choice.</p> <p>If you're hot on the trail for index funds to invest in, here are the top five index funds to own right now.</p> <h2>1. Vanguard High Dividend Yield Index Fund Investor Shares (<a href="https://personal.vanguard.com/us/funds/snapshot?FundId=0623&amp;FundIntExt=INT">VHDYX</a>)</h2> <p>Morningstar rating: 5 stars</p> <p>This large capitalization fund was designed for investors seeking long-term growth and those who can withstand greater volatility. This is an income-focused fund that invests in large U.S. companies that tend to pay higher dividends. Some of its holdings include ExxonMobil, Proctor &amp; Gamble, and JP Morgan Chase, to name a few.</p> <h2>2. Vanguard PRIMECAP Fund Investor Shares (<a href="https://personal.vanguard.com/us/funds/snapshot?FundId=0059&amp;FundIntExt=INT">VPMCX</a>)</h2> <p>Morningstar rating: 5 stars</p> <p>A long-term capital appreciation fund that invests in large and mid-cap companies with an emphasis on the technology and health care sectors. The fund follows a well-established investment strategy of dividing its portfolio amongst several fund managers for diversity of thought. Its holdings include Texas Instruments, Inc., Eli Lily &amp; Co., FedEx Corp., and many others.</p> <h2>3. Vanguard PRIMECAP Core Fund (<a href="https://personal.vanguard.com/us/funds/snapshot?FundId=1220&amp;FundIntExt=INT">VPCCX</a>)</h2> <p>Morningstar rating: 5 stars</p> <p>The PRIMECAP Core Fund is very similar to its younger sibling, PRIMECAP Investor Shares. This is a large cap fund that invests using the investment strategies of multiple fund managers. The key difference is the fund has both value and growth perspectives. Some of its holdings include Texas Instruments, Inc., Eli Lily &amp; Co., Google, and Johnson &amp; Johnson.</p> <h2>4. Vanguard U.S. Value Fund (<a href="https://personal.vanguard.com/us/funds/snapshot?FundId=0124&amp;FundIntExt=INT">VUVLX</a>)</h2> <p>Morningstar rating: 4 stars</p> <p>This is a large to mid capitalization fund that remains vested in about 200 companies using a qualitative approach that seeks to identify undervalued stock. Due to its broad-market exposure, investors should expect greater volatility and therefore invest with a long-term investment horizon. Some of the fund's major players are Pfizer, Inc., AT&amp;T, Chevron, ExxonMobil, and Wells Fargo &amp; Co.</p> <h2>5. Vanguard Consumer Staples Index Admiral Shares (<a href="https://personal.vanguard.com/us/funds/snapshot?FundId=5484&amp;FundIntExt=INT">VCSAX</a>)</h2> <p>Morningstar rating: 4 stars</p> <p>This fund is comprised of U.S. consumer staples, such as Wal-Mart, Costco, Coca-Cola Co., and PepsiCo. As a result, the fund will realize volatility consistent with consumer behavior, and investors should expect greater fluctuations. This is a very high-risk investment and it's advisable that it is used to hedge an already well-balanced portfolio.</p> <p><em>Are index funds part of your portfolio? Which?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/qiana-chavaia">Qiana Chavaia</a> of <a href="http://www.wisebread.com/the-top-5-index-funds-to-own-now">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-6-best-financial-news-sites-for-investors-in-a-hurry">The 6 Best Financial News Sites for Investors in a Hurry</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-ways-boring-investments-make-life-exciting">4 Ways &quot;Boring&quot; Investments Make Life Exciting</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/learn-how-to-invest-with-these-5-stock-market-games">Learn How to Invest With These 5 Stock Market Games</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-sobering-facts-about-the-stock-market">6 Sobering Facts About the Stock Market</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/mutual-funds-for-wise-bloggers">Mutual Funds for Wise Bloggers</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment diversification index funds market volatility stock market Fri, 24 Apr 2015 11:00:07 +0000 Qiana Chavaia 1396634 at http://www.wisebread.com 3 Steps to Getting Started in the Stock Market With Index Funds http://www.wisebread.com/3-steps-to-getting-started-in-the-stock-market-with-index-funds <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/3-steps-to-getting-started-in-the-stock-market-with-index-funds" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/man-4818317-small.jpg" alt="man holding graph" title="man holding graph" class="imagecache imagecache-250w" width="250" height="184" /></a> </div> </div> </div> <p>You'll often hear that index funds are the best way for new investors to get started in the stock market. The advantages of putting your money into index funds include:</p> <ol> <li>Easy-to-make investment decisions</li> <li>Performance that closely matches the market</li> <li>Relatively low fees</li> </ol> <p>The concept of index investing is simple &mdash; purchase shares of index funds and forget about them because you prefer passive to active management of your portfolio. Real-life implementation requires a bit more attention but is still relatively easy. Here's how to get started. (See also: <a href="http://www.wisebread.com/begin-your-investing-career-right-with-some-mutual-fund-basics">Begin Your Investing Career With Some Mutual Fund Basics</a>)</p> <h2>1. Learn About Stock Indexes</h2> <p>When you hear people refer to an index, they are most likely referencing the <a href="http://us.spindices.com/indices/equity/sp-500">S&amp;P 500</a> (or Standard &amp; Poor's 500), which are 500 stocks considered representative of the U.S. economy. An index fund contains shares of these 500 stocks. Occasionally<a href="http://en.wikipedia.org/wiki/List_of_S%26P_500_companies#Recent_changes_to_the_list_of_S.26P_500_Components"> stocks are dropped and others are added to reflect changes in the economy</a>.</p> <p>There are many other market indexes, too:</p> <ul> <li><a href="http://www.investopedia.com/university/indexes/index5.asp">Wilshire 5000 Total Market</a>, which covers 3,000 to 5,000 U.S. companies on major stock exchanges<br /> &nbsp;</li> <li><a href="http://en.wikipedia.org/wiki/Dow_Jones_Industrial_Average#Components"> Dow Jones Industrial Average (DJIA)</a>, consisting of 30 stocks of large companies<br /> &nbsp;</li> <li><a href="http://us.spindices.com/indices/equity/sp-400"> S&amp;P MidCap 400</a>, representing mid-sized companies<br /> &nbsp;</li> <li><a href="http://us.spindices.com/indices/equity/sp-600"> S&amp;P SmallCap 600</a>, consisting of small-cap companies<br /> &nbsp;</li> <li><a href="http://www.investopedia.com/university/indexes/index6.asp"> Russell 2000</a>, representing small-cap companies<br /> &nbsp;</li> <li><a href="http://en.wikipedia.org/wiki/MSCI_EAFE">MSCI EAFE</a>, consisting of stocks in developed countries of Europe, Australasia, and the Far East<br /> &nbsp;</li> <li><a href="http://www.msci.com/products/indices/country_and_regional/em/">MSCI Emerging Markets</a>, consisting of stocks in countries with emerging markets</li> </ul> <p>Note that each index and its performance are typically weighted based on market capitalization, which is the company's stock price multiplied by outstanding shares. So, higher valued stocks with more outstanding shares have greater representation or weight in the index than lower valued ones with the same (or fewer) shares.</p> <h2>2. Find and Buy Shares in an Index Fund</h2> <p>Look for a mutual fund screener that allows you to select &quot;index&quot; as a criteria. A great place to find such a tool is your broker's website, which may list index funds separately from actively managed ones. You may find index funds among selections of your employer's 401(k) plan or through a general Internet search of funds matching one of the indexes. (See also: <a href="http://www.wisebread.com/a-guide-to-online-brokers-for-investing-newbies-and-beyond">A Guide to Online Brokers for Investing Newbies</a>)</p> <p>Consider opening more than one brokerage account to broaden your choices. For example, start an account with Vanguard or Schwab to access their selections of low-cost index funds.</p> <p>There are many types of index funds from which to choose. Look for an all-market index or S&amp;P index fund. For example, the following funds replicate broad market activity:</p> <ul> <li>SVSPX: State Street Global Advisor S&amp;P 500 Index Institutional Class (minimum investment of $10,000 or $100 for an IRA; annual report expense ratio of .18%)<br /> &nbsp;</li> <li>PREIX: T. Rowe Price Equity Index 500 (minimum investment of $2,500 or $1,000 for an IRA; expense ratio of .29%)<br /> &nbsp;</li> <li>FSTMX: Fidelity Spartan Total Market Index (minimum investment of $2,500 or $200 for an IRA; expense ratio of .10%)<br /> &nbsp;</li> <li>VTSMX: Vanguard Total Stock Market Index Investor Shares (minimum investment of $3,000; expense ratio of .17%)<br /> &nbsp;</li> <li>SWPPX: Schwab S&amp;P 500 Index (minimum investment of $100; expense ratio of .09%)</li> </ul> <p>Buy shares in an index fund through your online broker, 401(k) plan at work, or directly from the fund company. Just as you would evaluate any other mutual fund, scrutinize management fees along with purchase and redemption fees. Compare performance with its underlying index; the two should be closely related, although fees, trading costs, and other factors may make returns slightly different.</p> <h2>3. Develop a Diversified Portfolio of Index Funds</h2> <p>If you've purchased an index fund based on the S&amp;P 500, then you've covered the domestic (or U.S.) large-cap segment of your portfolio. To create a portfolio using asset allocation principles, buy a few more index funds that represent other portions of the market, such as mid-caps, small-caps, and international stock funds. You might also consider buying bond funds. (See also: <a href="http://www.wisebread.com/the-basics-of-asset-allocation">Asset Allocation Basics</a>)</p> <p>To find a mid-cap index fund, look for index funds that replicate the S&amp;P Midcap 400. Similarly, find a small-cap fund based on the Russell 2000 or the S&amp;P SmallCap 600. Your international index funds could follow the MCSI-EAFE and MCSI-Emerging Markets.</p> <p>Through your search, you'll locate funds like these:</p> <ul> <li>DISSX: Dreyfus Small Cap Stock Index (minimum investment of $2,500 or $750 for an IRA; expense ratio of .50%)<br /> &nbsp;</li> <li>NSIDX: Northern Small Cap Index (minimum investment of $2,500 or $500 for an IRA; expense ratio of .15%)<br /> &nbsp;</li> <li>SWISX: Schwab International Index (minimum investment of $100; expense ratio of .19%)<br /> &nbsp;</li> <li>VIMSX: Vanguard Mid Cap Index (minimum investment of $3,000; expense ratio of .24%)<br /> &nbsp;</li> <li>VEIEX: Vanguard Emerging Markets Stock Index Fund (minimum investment of $3,000; expense ratio of .33%)</li> </ul> <p>Target-date, all-in-one, and/or balanced funds have been developed so that you don't have to buy multiple index funds to build a diversified portfolio. However, fees for these types of mutual funds may be higher than traditional index funds.</p> <h2>Index Alternatives</h2> <p>Many index-based mutual funds have <a href="http://etfdb.com/tool/mutual-fund-to-etf/">ETF equivalents</a>. They may also have <a href="http://www.investopedia.com/terms/e/enhanced_index_fund.asp">enhanced versions</a>, which seek higher returns through certain additions, exclusions, weighting methods, etc. As a result, the fund tends to be less in sync with its index. Plus, management fees are generally higher as these types of funds are actively managed. (See also: <a href="http://www.wisebread.com/the-duel-etfs-vs-mutual-funds">ETFs vs. Mutual Funds</a>)</p> <p>Index investing allows you to match returns of the market: your investment portfolio grows when markets rise, though it suffers when markets are down. Because it's a passive approach, you can spend less time making portfolio adjustments compared to a stock, ETF, or fund picking method. Just be sure to buy low-cost funds that closely match the underlying indexes you have chosen.</p> <p><em>Disclosure: This article discusses possible methods of index investing and funds are referenced for general information purposes. Investors should conduct research and/or seek professional advice before investing.</em></p> <p><em> </em></p> <p><em>Are you an index fund investor? Which index or indexes do you follow?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/julie-rains">Julie Rains</a> of <a href="http://www.wisebread.com/3-steps-to-getting-started-in-the-stock-market-with-index-funds">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/why-index-funds-are-the-best-choice-for-new-investors">Why Index Funds Are the Best Choice for New Investors</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/book-review-the-little-book-of-common-sense-investing">Book review: The Little Book of Common Sense Investing</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/is-paying-off-your-mortgage-early-costing-you-money">Is Paying Off Your Mortgage Early Costing You Money?</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/mutual-funds-for-wise-bloggers">Mutual Funds for Wise Bloggers</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/is-this-hidden-cost-sapping-your-retirement-savings">Is This Hidden Cost Sapping Your Retirement Savings?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment index funds indexes investing mutual funds Mon, 02 Sep 2013 10:24:29 +0000 Julie Rains 981653 at http://www.wisebread.com Why Index Funds Are the Best Choice for New Investors http://www.wisebread.com/why-index-funds-are-the-best-choice-for-new-investors <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/why-index-funds-are-the-best-choice-for-new-investors" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/piggy-bank-2550695-small.jpg" alt="piggy bank" title="piggy bank" class="imagecache imagecache-250w" width="250" height="199" /></a> </div> </div> </div> <p>Are you looking to build long-term wealth, but are so new to the world of investing that you don't know where to begin? If so, I've got great news for you.</p> <p>There aren't too many things in life that both save you more money and make you more money at the same time. Fortunately, a type of investment known as an index fund is one of them. (See also: <a href="http://www.wisebread.com/begin-your-investing-career-right-with-some-mutual-fund-basics">Begin Your Investing Career Right With Some Mutual Fund Basics</a>)&nbsp;</p> <p>That's why index funds are one of the best long-term wealth-building tools ever made. So let's dig in to see exactly what they are, and &mdash; more importantly &mdash; how they save you money and make you money all at once.</p> <p>But before we go further, let me explain some terms.</p> <h2>What Are Mutual Funds?</h2> <p>In a nutshell, mutual funds are a basket of different kinds of investments. And the most common investments are stocks and bonds.</p> <p>For instance, one mutual fund could be made up of a few hundred stocks. Another could be made up of a few hundred bonds.</p> <p>This large amount of stocks or bonds is a good thing because it protects you. If a few stocks or bonds don't perform well, then there are still hundreds of others to help pick up the slack.</p> <h2>Different Kinds of Funds</h2> <p>Within the world of mutual funds, there are two types of funds:</p> <ol> <li>Actively managed funds</li> <li>Index funds</li> </ol> <p>What's the difference?</p> <p>Actively managed funds are run by managers who <em>try</em> &mdash; note the keyword <em>try</em>&nbsp;&mdash; to beat the market's return. So if the stock market goes up 8% one year, this manager will try to pick certain stocks so that you'll earn more than 8%.</p> <p>Index funds, however, do <em>not</em> try to beat the market. All they do is copy it. So if the market goes up 8% one year, this fund has the same stocks that'll provide pretty much the same 8% growth. (See also:&nbsp;<a href="http://www.wisebread.com/7-great-investments-for-first-timers">7 Great Investments for First-Timers</a>)</p> <p>OK, now that I've explained that, let's go back to the topic of saving you more money.</p> <h2>Saving You More Money</h2> <p>First, it's important to know that all mutual funds come with a cost. The difference, however, lies in the amount.</p> <p>Actively managed funds charge more for the &quot;potential&quot; for higher returns that I mentioned above. In some cases, a lot more.</p> <p>According to <a href="http://www.ici.org/pdf/per19-03.pdf">a report from the Investment Company Institute</a> (PDF), the average actively managed fund costs 0.92% a year. This means that for every $1,000 your investment is worth, you'll pay $9.20.</p> <p>With index funds, however, you'll pay much less. The average index fund costs 0.13% a year. So for every $1,000 your investment is worth, you'll pay just $1.30.</p> <p>Now, this $7.90 difference may not seem like a big deal, but that's because we just started with a small amount as an example.&nbsp;To build real wealth, you need to invest often.</p> <p>Let's say you invest $5,000 every year for the next 20 years. Also, let's assume that both the actively managed and index funds grow by 8% per year (although I'll show you later that this isn't a fair assumption).</p> <p>If you chose the actively managed fund, at the end of the 20 years you'd end up with $219,728 &mdash; a decent amount. But if you invested in the lower-cost index fund, you'd have grown your money to the sum of $242,994 &mdash; a difference of over $23,000. (See also:&nbsp;<a href="http://www.wisebread.com/boost-your-retirement-savings-avoid-401k-fees">Boost Your Retirement Savings: Avoid 401(k) Fees</a>)</p> <p>What would you do with an <em>extra</em> $23,000?</p> <p>Or here's another way to put it &mdash; how much would it hurt to <em>lose</em> $23,000?</p> <p>This extra money that you'd make with an index fund comes from one thing, and one thing only &mdash; the cost savings.</p> <p>So one way that index funds both save you more money and make you more money &mdash; at the same time &mdash; is by the simple fact that they cost much less.</p> <p>But that's not the end of the story. There's another way index funds make you more money, and that's from the poor performance of most actively managed funds.</p> <h2>Making You More Money</h2> <p>A <a href="http://us.spindices.com/resource-center/thought-leadership/spiva/">study from the S&amp;P Dow Jones Indices found</a> that during the past three years, over 86% of large-cap funds failed to beat their benchmark index, the S&amp;P 500 index. While the actively managed funds provided just under 9% growth, the S&amp;P 500 index grew by over 10% during this time.</p> <p>This means that if you invested in the S&amp;P 500 (through an index fund, of course) during this time, you would've made more money than 86% of all other related funds.</p> <p>When you combine the greater long-term performance with the lower cost of index funds, you end up saving more money and making more money. (See also:&nbsp;<a href="http://www.wisebread.com/using-time-horizons-to-make-smarter-investments">Using Time Horizons to Make Smarter Investments</a>)</p> <p>If you'd like to see how I'm using index funds to build wealth, and how you can do it too, check out the <a data-mce-href="http://moneytobless.com/simplify-your-investing-with-the-core-four-portfolio/" target="_blank" href="http://moneytobless.com/simplify-your-investing-with-the-core-four-portfolio/">Core Four Portfolio</a>.</p> <p><em>Do you invest in an actively managed fund or an index fund?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/darren-wu">Darren Wu</a> of <a href="http://www.wisebread.com/why-index-funds-are-the-best-choice-for-new-investors">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/mutual-funds-for-wise-bloggers">Mutual Funds for Wise Bloggers</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-duel-etfs-vs-mutual-funds">The Duel: ETFs vs. Mutual Funds</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/3-steps-to-getting-started-in-the-stock-market-with-index-funds">3 Steps to Getting Started in the Stock Market With Index Funds</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-reasons-to-ditch-other-stock-investments-for-the-sp-500">5 Reasons to Ditch Other Stock Investments for the S&amp;P 500</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/why-young-investors-should-stay-the-course-and-continue-to-invest">Why young investors should &quot;Stay the Course&quot; and continue to invest</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment index funds investment mutual funds retirement funding Fri, 16 Aug 2013 09:48:29 +0000 Darren Wu 980986 at http://www.wisebread.com 5 Reasons to Ditch Other Stock Investments for the S&P 500 http://www.wisebread.com/5-reasons-to-ditch-other-stock-investments-for-the-sp-500 <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/5-reasons-to-ditch-other-stock-investments-for-the-sp-500" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/guys_investing.jpg" alt="Guys investing" title="Guys investing" class="imagecache imagecache-250w" width="250" height="135" /></a> </div> </div> </div> <p>Getting someone to invest in a low cost S&amp;P 500 index fund is tough, as owning just that one fund seems almost too simple. Doing so certainly offers no excitement. Yet, most people will be much better off in the long run by owning the S&amp;P 500 index fund instead of buying a bunch of mutual funds. Here are five reasons why. (See also: <a href="http://www.wisebread.com/how-and-why-to-start-an-investment-club">How (and Why) to Start an Investment Club</a>)</p> <h3>The S&amp;P 500 Is Less Risky Than What Most People Buy</h3> <p>One of the best (and seldom talked about) advantages of owning the S&amp;P 500 index is that you are betting on the economy rather than on the performance of a certain group of companies. This means that unless you believe the world is going to collapse and never come back, you are better able to sleep at night when stocks take a hit. With a higher level of certainty that valuations may rise in the future, more people will find it easier to buy more when things look bleak, and this alone can accelerate the growth of your holding very quickly.</p> <h3>Re-balancing Is More Trivial With Just One Fund</h3> <p>Not many people who own a bunch of individual stocks or a slew of mutual funds re-balance regularly, because doing so is cumbersome. When there is only one stock fund to change, everything becomes much simpler and easier to manage.</p> <h3>Many Reports Show the S&amp;P 500 Index Performance Without Dividends</h3> <p>Most funds try to compare themselves to the S&amp;P 500, but many of them cite the performance of the index itself instead of the performance of the index plus the dividend that the 500 companies in the S&amp;P 500 distribute. The current yield on the S&amp;P 500 is around 2%, which means that your fund (or your own stocks) better be outperforming it by more than 2% for it to be worth your while.</p> <h3>Investing in the S&amp;P 500 Likely Triggers Fewer Taxes</h3> <p>If you hold the index fund for more than a year, the current tax rate is only 15% because it's considered a long-term holding. When you buy and sell individual stocks, some transactions will naturally fall inside the one year window, triggering higher taxes. And when you own a fund, the same thing happens because you really don't have a choice as to when the fund will buy or sell.</p> <h3>Fewer Fees</h3> <p>It's not just the expense ratio either, which is approximately 1% when you compare a typical index fund versus a typical mutual fund. Unless you are buying them inside your <a href="http://www.wisebread.com/how-to-make-the-most-of-your-401K">401(k)</a>, most brokerages will charge you commissions whenever you buy and sell, so you pay more the more funds you own. When you don't invest in the S&amp;P 500 index fund, another cost you incur is the time you spend researching different options. You may even subscribe to different newsletters, services, newspapers, or magazines too. All of these are costs that not many people factor in.</p> <p>Buying just the S&amp;P 500 is boring, and you certainly don't have much to brag about when you are just getting the market returns every year. Sure, buying mutual funds may mean that you outperform the market by a wild margin for certain periods of time, but stretch that out long term and very few will benefit from avoiding the S&amp;P 500 in their portfolio. And with all the extra time you gain, the ability to easily buy more when prices are depressed, and the likelihood of beating the returns of most of the public, investing in the S&amp;P 500 is probably the most prosperous decision you can make for yourself long term, helping you retire comfortably. And by then, you will have lots to brag about.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/david-ning">David Ning</a> of <a href="http://www.wisebread.com/5-reasons-to-ditch-other-stock-investments-for-the-sp-500">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/3-steps-to-getting-started-in-the-stock-market-with-index-funds">3 Steps to Getting Started in the Stock Market With Index Funds</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/why-index-funds-are-the-best-choice-for-new-investors">Why Index Funds Are the Best Choice for New Investors</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/mutual-funds-for-wise-bloggers">Mutual Funds for Wise Bloggers</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-best-ways-to-invest-50-500-or-5000">The Best Ways to Invest $50, $500, or $5000</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-ways-boring-investments-make-life-exciting">4 Ways &quot;Boring&quot; Investments Make Life Exciting</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment index funds mutual funds SandP 500 Fri, 16 Dec 2011 11:24:30 +0000 David Ning 824533 at http://www.wisebread.com Is Paying Off Your Mortgage Early Costing You Money? http://www.wisebread.com/is-paying-off-your-mortgage-early-costing-you-money <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/is-paying-off-your-mortgage-early-costing-you-money" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/bigstock_African_American_woman_checkin_22718930.jpg" alt="woman shaking piggy bank" title="woman shaking piggy bank" class="imagecache imagecache-250w" width="250" height="179" /></a> </div> </div> </div> <p>A frequent question that pops into people's minds is whether they are throwing money away by paying off their mortgage instead of investing that sum. In reality, that's the last thing you should think about. Here's why:</p> <h3>The 1.5% Difference</h3> <p>Sure, the return of the stock market is higher than the interests one pays on mortgages, but is your money really earning the return of the market?</p> <p>Instead of just focusing on what your money could do if you invest that sum in the S&amp;P 500 index, you should really be thinking about the returns of all your assets as a whole because that's the true yield you are getting. This includes the equity in your home, all your savings accounts that are barely earning any interests, the bonds you own, and finally, the stocks that you have in your portfolios. (See also: <a title="5 Creative Ways to Invest During a Weak Market" href="http://www.wisebread.com/5-creative-ways-to-invest-during-a-weak-market">5 Creative Ways to Invest During a Weak Market</a>)</p> <p>But even if you forget about all that and just think of your investment portfolio, the results could surprise you. Say you get a 6% return, with taxes factored in, it would really be more like a 5% gain assuming you will have some long and short term gains as well as taxes on dividends.</p> <p>On the other hand, your 4.5% 30-year fixed rate mortgage is more like a 3.5% loan with taxes. Hurray you say, because you are still making 1.5% more when you invest the money.</p> <p>But hold on a second. A 1.5% difference on even $10,000, an amount you could likely come up with to either invest or pay off your mortgage, is just $150 a year. A whole year! I can save that much more just by <a title="How to Find Time for Home-Cooked Meals" href="http://www.wisebread.com/how-to-find-time-for-home-cooked-meals">cooking at home</a> three more times, or by buying less coffee outside.</p> <h3>Think of These Factors Instead</h3> <p>Now, $150 every year for 30 years is very good money, but as we all know, a 6% return isn't a guarantee for everybody. Add the stress that people put onto themselves when they are leveraging, and $150 seems like a ridiculously small amount to be paying for the additional stress.</p> <p>Instead of the additional money you are getting, think of the other advantages of not paying off your mortgage:</p> <p><strong>Liquidity</strong> &mdash; Your investments are more liquid than money tied up in home equity. Depending on how stable your income is, not paying off your mortgage could actually be the more conservative choice.</p> <p><strong>Asset Allocation</strong> &mdash; Are your real estate assets at a level that you would like? Remember to factor in just the equity that you've built, as any mortgages or loans that you owe is debt that needs to be repaid. Once you have the answer to this question, then you can easily figure out whether you should pay off your mortgages.</p> <p><strong>Freedom</strong> &mdash; This is a very personal question. My wife feels very strongly that we should pay off our mortgages early because she feels much more secure when she is debt free, even if she has the same amount of money in the stock market. I lean towards that side as well, though not nearly as extreme.</p> <p>For us, being debt free will probably lead us to live a healthier, happier life. But it might not be the same for you, as some people will feel more secure when they have a large balance in their portfolio.</p> <p>So really, there is no right answer. Do what make sense for your situation and what feels comfortable to you and don't worry too much about wasting money either way.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/david-ning">David Ning</a> of <a href="http://www.wisebread.com/is-paying-off-your-mortgage-early-costing-you-money">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-8"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/real-estate-investing-is-cheaper-and-easier-than-you-think">Real Estate Investing Is Cheaper and Easier Than You Think</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/its-time-to-purchase-like-its-1999">It&#039;s Time to Purchase Like It&#039;s 1999</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/should-you-skip-a-mortgage-payment-to-get-a-banks-attention">Should you skip a mortgage payment to get a bank&#039;s attention?</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-dumb-investments-smart-people-make">5 Dumb Investments Smart People Make</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/low-interest-rates-do-not-make-homes-affordable">Low Interest Rates Do Not Make Homes Affordable</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment Real Estate and Housing bank index funds investing money management mortgage real estate retirement tips Fri, 04 Nov 2011 10:24:16 +0000 David Ning 772980 at http://www.wisebread.com Choosing Your Path to Prosperity http://www.wisebread.com/choosing-your-path-to-prosperity <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/choosing-your-path-to-prosperity" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/423227306_1e98e26ff4_zcr.jpg" alt="Long hallway" title="Long hallway" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Let's imagine for a second that there is a contest going on where you can earn a cool $1,000,000 for finding a coin lying on the floor somewhere in a dark room. There is no time limit, and you are given two choices &mdash; either find the coin in dark room A, where you can roam around freely, or dark room B, where the room is really just a narrow hallway and only one person can fit through.</p> <p>Adding to the twist is that the second room, the narrow hallway, has a four-foot ceiling, meaning you need to either crawl or at least be on your knees the whole way. Furthermore, you are told that the coin is just at the end of the corridor, where the only challenge then is your endurance in making it to the end. The hallway could be 15 miles long, and you'd have to crawl the whole way, but it's still a sure thing if you are patient.</p> <p>So, which would you pick, and why?</p> <p>Room A is a solid choice, given that it could take years to crawl through room B. After all, in room A, you can roam around freely trying to find that coin, and if you are lucky, you can pick up the million dollar prize in no time.</p> <p>But think about the reality for a second. Once you are in room A, everything is pitch black. You have no idea how big the room is. In fact, you might need to run for a long time before you hit the walls. You will be excited and energetic at first, but as time goes on and you are still in the dark, will you still have the confidence that you will eventually find that coin? As anxiety sets in, will you give up or keep looking?</p> <p>On the other hand, in room B, you are pretty much guaranteed to eventually get the reward. You are most definitely not going to find it quickly, but you know that if you keep crawling, the coin will be there, and the million will be yours. Now, which will you pick?</p> <h3>The Real Path to Prosperity</h3> <p>When it comes to your investment decisions, do you use the same logic to make the your choice? Many people read about the long-term growth potential of the stock market, and they ignore volatility because they believe that time is on their side, but is that you? Do you pick room A, where you have a chance to strike it big instantly by picking that awesome hot stock with no guarantees that you will ever find it, or room B, where you buy a diversified basket of low-cost index funds, lowering the volatility and pretty much guaranteeing yourself a smaller but steadier appreciation over time?</p> <p>Tons of people still have a huge equity exposure because they ration that as long as they stay the course, everything will be okay. But what about the 50%+ drop of the S&amp;P 500 in 2008? If you are in room A, what happens when fatigue sets in and you start doubting your chances? Should you keep looking and stay invested?</p> <p>Volatility makes a huge difference in your investment returns. Risk tolerance is not only a test of your youth, but also a test of your mental toughness. For many people, the narrow hallway is a better approach.</p> <p>The good news is that unlike the contest, you can drastically shorten the hallway of room B by being financially responsible. You can raise the ceiling to more than 10 feet by saving more or shorten the hallway by spending less.</p> <p>For the responsible, the million is theirs for the taking if they choose the safe (and somewhat boring) approach.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/david-ning">David Ning</a> of <a href="http://www.wisebread.com/choosing-your-path-to-prosperity">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/stabilize-your-portfolio-with-these-5-bond-funds">Stabilize Your Portfolio With These 5 Bond Funds</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-ways-to-prepare-for-a-stock-market-dive">8 Ways to Prepare for a Stock Market Dive</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-best-ways-to-invest-50-500-or-5000">The Best Ways to Invest $50, $500, or $5000</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/3-steps-to-getting-started-in-the-stock-market-with-index-funds">3 Steps to Getting Started in the Stock Market With Index Funds</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/11-investment-mistakes-we-all-make">11 Investment Mistakes We All Make</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment financial risk index funds stocks Fri, 21 Jan 2011 13:00:54 +0000 David Ning 450381 at http://www.wisebread.com Mutual Funds for Wise Bloggers http://www.wisebread.com/mutual-funds-for-wise-bloggers <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/mutual-funds-for-wise-bloggers" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/pennies.JPG" alt="pennies" title="Joshua Davis" class="imagecache imagecache-250w" width="250" height="188" /></a> </div> </div> </div> <p class="MsoPlainText"><span>I know that Wise Bloggers are smart readers, so you might already know everything there is to know about mutual funds. However I have come across many very smart people who don&#39;t always have the full scoop on the mechanics of mutual funds. Hence: this refresher article. </span></p> <p><span> </span></p> <h3 class="MsoPlainText"><span>Mutual Funds: The Basics</span></h3> <p class="MsoPlainText"><span>A mutual fund is a &quot;basket&quot; of investments, managed by a fund manager (usually with the help of a team of analysts). This basket of investments can be made up of stocks, bonds, short term securities, or even real estate among other vehicles.</span></p> <p class="MsoPlainText"><span>As a mutual fund investor, your money is pooled with that of other people who are investing in the same fund. The fund manager, now with lots of buying power since the money is all pooled together, then buys and sells the securities and actively manages the holdings.</span></p> <p class="MsoPlainText"><span>As a mutual fund investor, you buy shares (also known as units) of the fund, based on the amount of money you are investing. You are also able to buy fractions of shares if the money you invest doesn&#39;t divide exactly into the share value or if you are investing small amounts of money. Mutual funds are open-ended, so when you invest you buy shares directly from the fund itself, and when you wish to sell you sell directly back to the fund. This makes for a fairly liquid investment, as you don&#39;t have to find a buyer in order to sell (or vice versa).<span>  </span></span></p> <p class="MsoPlainText"><span>Mutual funds are valued daily (and in some rare cases semi-monthly or monthly, for example with real estate). The daily value (known as the Net Asset Value) is calculated as a function of the current market value of the holdings divided by the number of shares outstanding.</span></p> <p><span> </span></p> <h3><span>Performance</span> </h3> <p class="MsoPlainText"><span>Performance of a mutual fund depends entirely on two factors:</span></p> <p class="MsoPlainText"><span>1) What the fund invests in.</span></p> <p class="MsoPlainText"><span>2) The competence of the fund manager. </span></p> <p class="MsoPlainText"><span>A fund that invests in small cap stocks will perform quite differently from one that invests in bonds, and differently again from a short-term money market fund. Likewise the competency of the fund manager comes into play and can drastically affect the returns. The fund managers do however have many incentives to perform, as they can lose their job if they under-perform compared to other funds of similar mandates. </span></p> <p><span> </span></p> <h3><span>Making Money with Mutual Funds</span></h3> <p class="MsoPlainText"><span>Assuming your mutual fund is a winner and is making money, the fund manager passes the capital gains/dividends/interest earned by the holdings on to us, the shareholders. Thus at the end of the year, you must report the income when you file your taxes. </span></p> <p class="MsoPlainText"><span>I will also note that in most cases, people re-invest the income in the fund, which is a great case for compound growth and passive money management. You are still required to report the income on your taxes each year though, even if it is re-invested. </span></p> <p><span> </span></p> <h3><span>The Ever-Present Fees</span></h3> <p class="MsoPlainText"><span>One of the biggest criticisms that the mutual fund industry battles is that of their fees. It is often expressed as a percentage of the assets of the fund and goes towards managing the fund; covering expenses such as trade fees, admin, custodian, legal/audit, accounting, and even salaries of the managers and analysts. These fees are often referred to as Management Expense Ratios (MERs). Not all funds carry the same fees either.</span></p> <p class="MsoPlainText"><span>Please note that all reported or advertised performance figures of a mutual fund are always net of fees. What you see reported is what you get. So even if a fund carries a higher fee, if it outperforms other funds in its peer group, it still warrants consideration. </span></p> <p><span> </span></p> <h3 class="MsoPlainText"><span>Load vs No Load</span></h3> <p class="MsoPlainText"><span>In addition to the MERs which are ever-present and unavoidable, you may find yourself weighing load and no-load options. </span></p> <p class="MsoPlainText"><span>A Loaded fund is one which carries an additional charge to invest in the fund, usually because you are receiving advice from a salesperson or <a href="/how-to-choose-a-financial-planner-yes-you" target="_blank">financial planner</a>. A Front-End Load entails an up-front fee for investing in the fund, and a Back-End Load (also known as a Deferred Sales Charge) would charge the fee upon redemption; both fees are often expressed as a percentage of the money invested. Some Back-End fees operate on sliding scales, such that if you leave the money in the same fund or family of funds for a certain period of time (usually five to seven years), the fees decline to nothing. Thus if you plan to invest for the long haul, these back-end loads are often the most appealing. </span></p> <p class="MsoPlainText"><span>And although the term No Load obviously means there is no additional charge, they can sometimes charge a higher MER than their Loaded sister funds, thereby reducing your effective returns. </span></p> <p><span> </span></p> <h3 class="MsoPlainText"><span>Index Funds</span></h3> <p class="MsoPlainText"><span>An Index fund operates very similar to a mutual fund, except is it not actively managed. The performance of the fund is linked to the performance of a market index, such as the S&amp;P500. Thus, the fees are often considerably lower than other mutual funds, since you as the shareholder aren&#39;t relying on the fund manager&#39;s expertise to pick the right investments. </span></p> <p class="MsoPlainText"><span>Historically it has been a toss-up as to which option is better. Because of the lower fees, index funds can be harder to beat. However, indexes weren&#39;t created to be investments unto themselves; they are more of a barometer as to how certain markets are performing. They can also be heavily weighted in certain holdings, thereby reducing the diversification you might get with other funds. (A mutual fund is not allowed to invest more than 10% of its assets in any given investment, thus providing an amazing amount of diversification; if one specific investment tanks, you still have a number of others to save the day and reduce your losses). Fund managers can also make certain investment decisions and change up the holdings of a fund if there is trouble brewing, something index funds can&#39;t as easily do. If an index is sinking and you&#39;re not watching it actively, you&#39;re going down with the ship. </span></p> <p><span> </span></p> <p class="MsoPlainText"><span>There is much more to mutual funds than the simple overview given here: We could talk about classes of shares, equity funds, bond funds, money market instruments, disclosure scandals, exchange traded funds, and the list goes on and on from there. </span></p> <p><span>What I can say in favour of mutual funds is that they are a great way to invest for the long haul in a passive manner. You can create a &quot;bomb-proof&quot; portfolio of funds that are well balanced and diversified, and then technically forget about it. Given enough time, good fund managers, and a <a href="/how-to-choose-a-financial-planner-yes-you" target="_blank">good financial planner</a> keeping an eye out for you, you can reach your financial goals without having to watch the stock ticker every day. Go have dinner with your family or friends instead: they&#39;ll likely appreciate your company more than the numbers in your bank account. </span></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/nora-dunn">Nora Dunn</a> of <a href="http://www.wisebread.com/mutual-funds-for-wise-bloggers">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-3"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/3-steps-to-getting-started-in-the-stock-market-with-index-funds">3 Steps to Getting Started in the Stock Market With Index Funds</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/why-index-funds-are-the-best-choice-for-new-investors">Why Index Funds Are the Best Choice for New Investors</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-reasons-to-ditch-other-stock-investments-for-the-sp-500">5 Reasons to Ditch Other Stock Investments for the S&amp;P 500</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-ways-boring-investments-make-life-exciting">4 Ways &quot;Boring&quot; Investments Make Life Exciting</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-best-ways-to-invest-50-500-or-5000">The Best Ways to Invest $50, $500, or $5000</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment index funds investments mutual funds Sun, 09 Sep 2007 04:41:07 +0000 Nora Dunn 1126 at http://www.wisebread.com Book review: The Little Book of Common Sense Investing http://www.wisebread.com/book-review-the-little-book-of-common-sense-investing <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/book-review-the-little-book-of-common-sense-investing" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/bogle-common-sense-cover.jpg" alt="Cover of The Little Book of Common Sense Investing" title="Cover of The Little Book of Common Sense Investing" class="imagecache imagecache-250w" width="112" height="160" /></a> </div> </div> </div> <p><a href="http://www.amazon.com/gp/product/0470102101?ie=UTF8&amp;tag=wisbre08-20&amp;linkCode=as2&amp;camp=1789&amp;creative=9325&amp;creativeASIN=0470102101"><cite>The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns (Little Book Big Profits)</cite></a> by John C. Bogle.</p> <p>For years there were two books that I recommended to people who wanted advice on investing. One, by Andrew Tobias (which I'll post a review of presently), was for people who viewed investing at least partially as a source of entertainment--people who were interested in the process as much as the result. The other, John C. Bogle's previous book, was for people who just wanted the best possible long-term investment return with the least effort. Now that I've had a chance to read Bogle's new book, I can confidently start recommending this one instead. In fact, I'll start recommending it to both kinds of investors.</p> <p>As the title claims, it is quite a little book--you can read it in an afternoon. Its compactness comes in large part from the simplicity of its message:</p> <ol> <li>For maximum return, invest mostly in stocks. Bogle does recommend including bonds in your portfolio, initially as a small percentage that grows as you approach retirement, but you cannot expect much in the way of long-term growth from the bond portion of your portfolio.</li> <li>Invest for the long-term. Bogle points out that the time horizon for an investment shouldn't be calculated just to until the investor expects to retire, but rather to until he expects to die--at least 50 years for a young investor, and quite possibly 20 years or more, even for someone who has already retired</li> <li>Invest in index funds</li> </ol> <p>The virtues of index funds are a focus of the book; the main ones are:</p> <ol> <li>The whole return of the equity market. Since mutual funds are such a large part of the entire market, they are by and large buying from and selling to one another. The upshot of that is that a profit for any one fund is almost by necessity a loss to some other fund. Buying an index fund let's you avoid all that.</li> <li>Low expenses. The costs of management and the expenses of trading come directly out of the fund's assets. If you keep trading to an absolute minimum, you avoid trading costs. And, if you're not trading, you scarcely need any management.</li> <li>Tax efficiency. If your fund trades, you owe taxes on the capital gains each year. An index fund, since it scarcely trades, postpones the tax bill, potentially forever. (If you die still owning the stock, your heirs need not pay the capital gains taxes.)</li> </ol> <p>There's a discussion of bond funds, to which the same discussion applies, only more so, as the opportunities for great management producing higher returns are limited in a bond fund, and the expenses eat away all the more fiercely at a generally smaller return.</p> <p>After minimizing your costs (by buying index funds), the next most important determinant of total return is the asset allocation. This area is one I find interesting, and Bogle gives it only a very brief mention. Brief as it is, though, it covers the topic adequtely for anyone who is just trying to make a good return without having to spend a lot of time thinking about their investments.</p> <p>There's discussion of the issue of &quot;fun&quot; investing--the sort of investing where the investor makes decisions because he or she wants to feel involved. Bogle admits that there's a roll for that, if only to teach yourself by first-hand experience that just buying the whole market through an index fund is a winning strategy.</p> <p>I used to recommend Bogle's earlier book <a href="http://www.amazon.com/gp/product/0440506824?ie=UTF8&amp;tag=wisbre08-20&amp;linkCode=as2&amp;camp=1789&amp;creative=9325&amp;creativeASIN=0440506824"><cite>Bogle on Mutual Funds: New Perspectives for the Intelligent Investor</cite></a>, which remains an excellent choice. The main difference between that book and this (besides some updating) is that this book drops a lot of the earlier book's advocacy of reform in the mutual fund industry. I'm not sure how much of the change is because the battle has, to some extent, been won (low-cost index funds are now readily available) and how much is because Bogle has written another book on that topic in particular. Either way, the change is a good one: <em>The Little Book of Common Sense Investing</em> covers one important topic in a brief but comprehensive way.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/book-review-the-little-book-of-common-sense-investing">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-4"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/book-review-cash-rich-retirement">Book review: Cash-Rich Retirement</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/book-review-the-only-investment-guide-youll-ever-need">Book review: The Only Investment Guide You&#039;ll Ever Need</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/book-review-supercapitalism">Book review: Supercapitalism</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/book-review-retire-on-less-than-you-think">Book review: Retire on Less Than You Think</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/book-review-towers-of-gold">Book review: Towers of Gold</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance book review books index funds investing mutual funds review Wed, 29 Aug 2007 11:13:19 +0000 Philip Brewer 1057 at http://www.wisebread.com