It could, but that’s still better than the inflation adjusted return of money under your mattress or a savings account for that same period.
I’m a big fan of the targeted date funds. Pick your approximate date of retirement. The fund automatically adjusts to be less and less aggressive as you get closer to the retirement date.
I’m a little older than the OP, but I dipped my foot in the “other than 401(k)” pool a couple years ago by setting up a high-yield CD with Ally bank.
I was 45 at the time, and – thanks to a small inheritance – in a position to invest for the first time in my life. I didn’t want to do anything fancy, I just wanted to earn better interest than if I left the money in my savings or checking account. I figured a CD was pretty safe and easy. I got advice from my father, because I was worried about funding the CD and then needing some/all of the money for an emergency before it matured; he explained that all I could ever lose was interest, never the principal. At the time he was using Ally for several CDs, as they offer better rates than the credit union we’re both in, and was happy with their service.
Once I understood the concept better, I looked at the options on Ally’s website and picked an option with a length/APY balance that I was comfortable with. I chose an 18-month CD, and when it matured I’d earned $1000. I renewed it.
100% of my 401(k) funds are in a TDF. Recent quarterly statements have been kind of depressing, but I keep reminding myself that I still have ~20 years to go (which is also kind of depressing!)…
But check the fees. They tend to be more expensive than index funds.
Those who really suffer are those who lose their jobs during a downturn, and then are stuck selling at the bottom to live. It is why having a cash cushion is a good idea.
In 2008 I was lucky enough to still have a job, so I sold nothing and kept buying, and did quite well. Dan Ariely’s #1 investment advice then was to not look at your statement.
Worked for me.
One of the “learned too late facts” that is my greatest investing regrets now that I am retired is :
Now, the S&P doesn’t return a nice even amount every year. However my ‘what if’ spreadsheet using real S&P returns from the forty years since I was 25 shows that the ten year example would be 62% larger than the thirty year example. (The S&P declined in 9 of those 40 years - 8 of those years more than 6.5%.)
Thanks for the replies. And I am planning for retirement. I am 36, so that means around 30 years to invest. And I am looking into S&P 500 Index Fund’s now. Would Vanguard be the best bet to invest with?
It’s interesting that people use historical returns to promote investing in the S&P 500 exclusively, but the same historic returns also show a huge premium for value stocks, especially small-cap value stocks.
From 1928 to 2017, the S&P 500 had an annualized return of 9.7%, so a dollar invested in 1928 would have grown to $3,155. Not bad, but for the same period Eugene Fama and Ken French have shown that small cap value stocks have returned 13.4%, so a dollar invested in 1928 would have grown to $83,387 (https://www.fplcapital.com/wp-content/uploads/2018/06/Matrix-Book-2018.pdf), or over 25X as much.
I’ve been with Vangaurd for some 20 years (has it really been that long) and like them a lot. Basically I just put my money in there and forget about it until a need a bit of extra cash to buy a house or redo the kitchen.
They have a number of different index funds that may be even better than an S&P500 because they also invest in bonds and some foreign markets to maximize diversity, and reduce the risk of a pure stock portfolio, these funds also automatically re-balance. They also have the advantages of the S&P index in that they don’t do much in the way of trading, are heavily diversified and have very low overhead.
If this investing is purely for the purpose of saving for retirement, then you should probably talk to a financial advisor about IRA’s and the like.
Those are target date funds, as mentioned upthread.
Vanguard has advisors for that too. Unlike the advisors at Merrill Lynch, Wells Fargo Advisors (sadly, I use them all) - they don’t charge a fee or steer you to commission making purchases.
If you can find an independent, flat-fee advisor, fine. Otherwise study and read. It is not rocket science.
And that’s when all the shares that you “bought low” because the market was tanking, plump up to be worth so much more.
For the record, here’s slightly more general financial advice. All you need to know on one index card: http://www.samefacts.com/2013/04/everything-else/advice-to-alex-m/
Same here. My 401(k) and IRAs are in those with Vanguard. When I read the OP and it mentioned the 401(k) my first thought was: Well, you already are investing, right?
My Vanguard says: Fees - 0.05% expense ratio. Am I missing something?
For a U.S. investor, here’s a slightly more sophisticated (but still simple) model portfolio using 6 ETFs for the equity portion, based on the following principles:
Passive indexed, long term buy-and-hold (time horizon = decades);
Huge low-cost liquid funds - Vanguard and Blackrock;
Global diversification, 30% outside the U.S.;
Overweighting for small-cap value stocks that have significantly outperformed in the long run (see Surreal’s post above). Note that this has worked historically only in the developed markets.
50% VTI - entire U.S. market
10% VBR - U.S. small cap value
10% IJS - U.S. small cap value
15% IEFA - international developed markets
5% SCZ - international developed markets small cap
10% IEMG - emerging markets
Some notes on these choices:
Small-cap value is a discretionary (albeit disciplined algorithmic) strategy, so some care is warranted - not all indices/funds are equal or equally well managed. Blackrock and Vanguard are the two best. IJS and VBR track different indices. IJS has higher fees, but the average market cap of its indexed stocks is half the size. I think diversifying across the two indices/funds is warranted.
SCZ is the most expensive fund here at 0.40%. But choices for international small cap exposure for a U.S. investor are limited, and this is the best. It gives exposure to international small cap in exactly the places where small cap has historically outperformed - i.e. excluding emerging markets and excluding Canada. For this reason, it has consistently outperformed the cheaper Vanguard fund (VSS) by far more than the difference in management fees.
IEFA and IEMG have corresponding Vanguard funds (VEA, VWO) that are almost indistinguishable in fees, size, performance. The Blackrock funds seem to do a better job of identifying Qualifying Dividends in their international funds (better tax treatment for your dividend income). And other things being equal, better to diversify assets across two equally good fund managers than have everything with Vanguard.
I recently read about a newly retired multi-millionaire-like 2 or 3 million. He got there the old fashioned way- worked and saved and invested like clock-work over his entire career. After he retired he found himself associating with people in similar situations. As a kind of hobby, he started asking them how they retired at that level. The majority of them had done it the same way he had. He kept asking around and eventually talked to over 200 people in similar situations. Again the majority put their retirement money in an index fund over several decades. Obviously these were pretty well-paid individuals but the strategy was the same. S&P500 index at the lowest cost possible. Invest every 2 weeks regardless of the market. If possible increase your investments during downturns. Those that didn’t follow the strategy were self-selected out of the group by not making very much. The strongest ones would follow the market closely-but never deviate from the strategy. They would look but not touch! 
That is what I did (mostly). I wasn’t as well paid as the folks above, but won’t have money troubles during my retirement.
Low-cost ETFs, split into Developed Market Equities, Emerging Market equities and bonds/cash. Something like 50/30/20, or tweak as you like based on your age, risk tolerance etc.
You can find EFTs that pay less than 0.1%.
That’s the standard vanilla approach. Personally I’ve been heavily tilted towards emerging and commodities instead of developed and bonds for a few years now - bonds are not the ‘safe’ investment option people seem to think they are.
Anyway, the two critical factors for success - and you have control over both - are staying in the market for the long term, and keeping costs (and taxes) down. Do those two things, and you’re miles ahead of the game.
The biggest mistake people make are buying when they should be selling due to FOMA (fear of missing out) - think of the people that jumped in to Bitcoin during the bubble this time last year.
The second mistake people make is selling when they should be buying - I know too many people that dumped their stocks after the market crashed in 2008 and then missed the entire 9-year rally.
Ideally, you want an investment plan in place, in writing, that you stick to. You want to make your investment decisions when you can be rationale. Deciding what to do when the market’s crashed 20% means you’re making decisions based on emotion.
Having a plan in place helps you do what you should be doing, rather than leaving yourself at the mercy of fear and greed. Put a plan in place - in writing - “I’m going to invest 40% in X, 40% and Y and 20% in X, every month, and I’ll sell X% if the market falls Y%”. And then forget the login to your brokerage account for six months. Re-visit it once or twice a year at most.
Again, thank you for all the advice. I have a question on taxes. If I were to invest with Vanguard in an individual account, at the end of the year do they tell me what my taxable income earned through them was?
Yes. You will get a 1099.