Mutual Funds

[Ima saver]

Re: Mutual Funds

I think that is a good idea. And stick with it, don't worry if it goes up and down.

[Hypersion]

Re: Mutual Funds

yeah but VFINX cost $120 a share. With the money im going to put in i will see almost no increase. What about ING Direct's fund IDROX. It looks to have huge returns

IDROX is a REIT fund but vanguard also has a REITS fund (Vanguard REIT Index VGSIX) vanguard's reit's fund has better returns and a lower expense ratio than the ING REIT fund.

[risknothing]

Re: Mutual Funds

What is someones opinion on investing 3000 in both mutual funds. Do you believe that would be a better option? What charges would i incur per year if i left the funds alone?

I only have about 15,000 but i just graduated college in May. But I'm looking to invest in more then just CD's. Currently I have two 5,000 CD's one due in dec and the other in June. I'd like to start saving for the future, maybe try to buy a house in a few years. Would mutual funds be the best way or should i stick with cd's for now?

[disneysteve]

Re: Mutual Funds

If you are saving to buy a house in a few years, you don't want to put that money at risk in the stock market. Keep that money somewhere safe, like a CD or high yield savings account.

The stock market is for your long term savings, 5-10 years or more. The last thing you want to do is invest money that you need in a few years and have the stock market be in a downturn when you need to withdraw that money.

I think the best way to get started is to set up an AIP, automatic investment plan. Once you pick a fund, like Vanguard 500 Index, you can sign up to have them automatically transfer a set amount of money each month from your checking account. That is called dollar cost averaging. The theory is that if you put in $100/month, for example, some months you will buy more shares because the price will be a little lower and some months you will buy fewer shares because the price will be a little higher. That prevents you from buying at a peak price. Over time, dollar cost averaging generally results in you having a lower average share price. It also allows you to include investments in your budget more easily. Just as you budget your rent or your car payment you would budget your monthly investment amount.

[risknothing]

Re: Mutual Funds

when i say that im going to buy a house in a few years that means at least 5 years. I live in NJ where house prices are min 400,000 and will go up in 5 years. I don't believe i can consistantly put 100 a month into a mutual fund. some months i will be able to put more while some i will have to put less. The Mutual funds from Vanguard seem to have no purchase fee or redemption fees. Is this true. Also when i invest more money in there is no fees right? The only fee i should be paying is the management fees. Correct?

[meaghanchan]

Re: Mutual Funds

If you want to buy a house, you should continue saving in CDs/ internet savings accounts for that goal. Stock mutual funds are too volatile for short-term (especially less than 5 year) goals.

Stock mutual funds are better for long-term goals, such as retirement. The first place I'd buy mutual funds is within a tax-advantaged account, such as a Roth IRA or a 401(k), if you're eligible.

You should never look at the one-year returns on a fund. Just because a fund does great one year doesn't mean it will do well the next year. If you just looked at the funds that did best last year, and bought those, you'd probably have a very rough 5 years. It's called reversion to the mean- some stock does great, everyone buys it, the price goes up, it becomes overvalued, the price goes down, people lose money. People tend to buy high and sell low when it comes to stocks. Buying after a fund's just had a terrific year generally means you're buying high, and that's, of course, what you want to avoid. Think about Microsoft, or Amazon, or a hundred other companies or tech funds, before the tech bubble burst.

Buy a fund with a good 10- or more- year record. And understand it, before you buy it. Read the prospectus and understand the fund's strategy. Does it buy big blue-chip companies? Does it seek out small companies with a lot of potential? Is it an index fund or a managed fund? What's the manager's strategy? If you understand it, you'll be more likely to keep the fund if it goes down- and it will go down. Sometimes it'll have down days, sometimes it'll have down months. Sometimes it'll have down years. Even great funds have down years. That doesn't mean it's time to sell-- it just means (if it's a great fund) wait it out. If you're saving for a long-term goal, such as retirement, chances are in the next 40 years it'll bounce back.

That said- diversify, diversify, diversify. Don't put all your eggs in one basket. Mutual funds by themselves are a great diversifier, but buying one fund with a narrow strategy (emerging markets, or REITs, or commodity funds) means that if it goes down, your whole portfolio goes down. Decide on an allocation that's right for you, and stick with it. Have US and foreign funds- so that if either one does badly, your overall portfolio won't suffer too much. Sticking all your money in, say, Brazil, or India, is a recipe for disaster. As great as those countries may be doing (I don't really know, to be honest), one bad natural disaster can have HUGE implications for your portfolio.

Finally, learn all you can about this stuff. I wouldn't invest any money at all into mutual funds until you really understand them. http://www.morningstar.com is an investing site where I really learned a lot about stocks, bonds, and mutual funds. They have a 'learn' section that is just really, really, really awesome. They do have premium content you have to pay for, but you can access much of the site, including, I believe, all of the learning resources, for free. It's absolutely invaluable information.

Good luck with your investments!

[sweeps]

Re: Mutual Funds

Well stated, meaghanchan.

[Ima saver]

Re: Mutual Funds

You did a very good job.

[risknothing]

Re: Mutual Funds

What do you think about the Vanguard Star fund? I like the return of the REIT Index Fund Inv but im worried that the real estate market is going to bottom out. I need a fund that i can invest 3000 in and slowly put more in over time.

[meaghanchan]

Re: Mutual Funds

Regarding the Star fund:

1. It's a great fund, with solid long-term returns.
2. I just sold all I had in it.

I only say this to illustrate that each person's individual goals and needs are different. It's a good fund, but it's not a good fund for every person. If you are only going to choose one fund, if it's in a tax-advantaged account such as a 401(k) or Roth IRA, and this is for something 10-30 years down the road, I think the Star fund makes sense.

Choosing between the Star fund and a REIT index fund, I would choose the Star fund every time- it's much more diversified, so it's less risky. It has a combination of stocks, bonds, US stocks and foreign stocks. It is not dependent on only one asset class, the way the REIT index is. A REIT fund can be a valuable addition to your portfolio- but I don't think it should be over 10% of your portfolio, and certainly shouldn't be your only fund.

If you are considering the Star fund, you might want to look at other balanced funds, like Vanguard's Wellington fund (though the minimum investment in that has recently been raised to $10,000), one of their target retirement or lifecycle funds, or a balanced fund run by another company if you prefer (though I can't give any recommendations there).

[Secret8gent]

Re: Mutual Funds

With regards to long term retirement planning investments; when I read about Vanguard index funds, I have not heard much talk of the Vanguard Value Index Fund Inv which as of 09/13/06 looks like:

Name / Price / YTD / 1 Year / 5 Year / 10 Year / Since Inception
VIVAX / $24.65 / 11.83% / 14.34% / 6.94% / 9.85% / 11.60% 11/02/1992

Everyone generally talks about the Vanguard 500 Index Fund Inv

Name / Price / YTD / 1 Year / 5 Year / 10 Year / Since Inception
VFINX / $121.87 / 6.93% / 8.72% / 4.53% / 8.83% / 12.04% 08/31/1976

Or the Vanguard Total Stock Mkt Idx Inv

Name / Price / YTD / 1 Year / 5 Year / 10 Year / Since Inception
VTSMX / $31.76 / 6.69% / 8.73% / 5.95% / 8.89% / 10.46% 04/27/1992

It seems that the Value fund has outpaced the other two in all categories except the Inception % of the 500, and there is only a difference in expense ratios of 0.02% between the three.

Am I missing something? (which would not suprise me) Is it what the funds invest in that turns people one way or the other? please let me know.

Thanks!

[sweeps]

Re: Mutual Funds

You'll find many sector and specialized funds that have outperformed the S&P 500 or the TSM index. But you have to ask yourself is that a permanent trend or is it just a temporary phenomenon. By limiting your stock selection, you usually increase your portfolio risk.

[disneysteve]

Re: Mutual Funds

Am I missing something?

You need to think about a few things:
1. Markets are cyclical. Sometimes large companies dominate, other times small companies dominate. In recent years, small/value stocks have outpaced large companies. Most analysts think we are at or near the end of that trend and large growth companies will move back on top. So now probably isn't the time to be dumping large sums into value funds.

2. You need to balance performance with risk. And everyone's tolerance is different. For example, would you rather invest in fund A that will have a 1-year return of 15% but might swing by as much as 20% in either direction or fund B that will only return 10% but won't vary by more than 5%? If you will be losing sleep when your fund is down 20%, the riskier fund probably isn't for you even if the possible return is greater.

3. You need to diversify your holdings. You shouldn't have all of your money in large company growth or in small company value or in Internationals or in precious metals. You need to spread the money around to level off your performance and lessen the overall risk.

[LuxLiving]

Re: Mutual Funds

disneysteve, do you need to edit that second sentence in your last paragraph to read "you shouldn't have all your money..."?

[twins0203]

Re: Mutual Funds

After reading some of you guy's advice about Mutual Funds, I have been doing a little reading and am becoming more interested in them.

I guess what I don't like is the possible negative return as opposed to a MMA always being positive. But looking at the overall history of the Vanguard 500 Index, ~2900% since '76, it seems great and is more than a bank would return.

Here's the page I'm looking at now https://flagship.vanguard.com/VGApp/...FundIntExt=INT

I guess I am kind of scared of the returns like '01 and '02 showed.

Anyways, right now I will have ~130k at the end of the month sitting in MMA's. I am not needing any of this money to buy anything now for a good while.

Would anyone care to give some advice about what they'd do in this particular situation?

Let's say for some reason after a few good years of positive returns, I either need or want to withdraw, can you do this whenever you please?

Thanks in advance!