What’s your savvy level? Do you know the difference between front-, rear- and no-load funds? How long can you keep the money locked up? How long is “long-term.”
If you’re able to keep things locked up for 5+ years, why the aversion to agressive MFs? Stocks are on sale right now–if you don’t need the money right away this would be a good time to invest heavily and agressively. This time last year was the time to invest in bond funds, with economic recovery on the horizon (Dow popped 9 grand this morning for the first time since the shit hit the fan in October) it might be time to stand up and surf.
A front-loaded fund skims off a %age of your initial investment, the balance grows and can be withrdraw with no further deductions.
A rear-loaded fund grows on 100% of your investment, but skims off a %age of whatever amount you withdraw.
A no-load fund is more insidius. The service fee is constantly collected from the gross value of the investments, what’s left is attributed to the overall growth of the fund. So if a NL fund shows growth of 8% over the course of a year, it was really more like 8.7%. That said, no-loads are good for non-nitpicky noobs who just want to put some money in the machine and know what they’ve got left.
After last year, probably nobody is going to look good when you do your research, so you just need to consider who looks the least beat up. If you’re thinking long-term investment, look at how the different funds have performed long term. Judging anyone (who didn’t die) based on 2008’s numbers isn’t fair to anyone.
I personally like Janus because they have a variety of agressive funds that target different sectors of the market. Also, it’s easy to move the cash around between funds if you get a feeling that one’s about ready to take off. Or if you wake up on September 3rd, 2008 with a really bad feeling and you want to move everything into a municipal bond fund…
So, in answer to the OP. Janus Twenty or Janus Triton. And no, this is not financial advise because I let my series 6 license lapse many years ago. This is nothing more or less than a guy at the race track giving out hot tips.
Not true. A load is, specifically, a sales fee. It’s either collected when you buy in, or when you sell. Operating expenses are a different beast.
The load on a fund is completely separate from operating expenses and, as far as I know all mutual funds have operating expenses of some sort, charged as a percentage of assets held. So, a no-load fund is considerably less insidious than load funds, since both have ongoing expenses, but the latter also charges you when you move into or out of the fund.
The two funds you mentioned, the Janus Twenty, and the Janus Triton, have annual expenses of 1.21% and 0.86% respectively. That’s not terrible, for actively managed funds, but you could do much better with index funds. Vanguard, for example, has an average annual expense ratio of 0.20%. If those Janus funds also have a load, you’re paying an awful lot for those Janus managers. Better hope they’re lucky, since actively managed funds do worse than indexes on average.
ETA: To the OP, I recommend a Vanguard index fund. Which one will depend on your capacity for risk, but with 10 grand you could split it between up to 3 funds (most have a $3K minimum initial investment).
Thanks. I’m now going to put every cent I own into Janus Triton, and if it fails you can feed me for the next 50 years
From my limited research, I have seen that every fund has either: a load, a transaction fee, an expense ratio, and a redemption fee. Some have none of the above, some have all of the above, and most have a mix. It seems as if it all works out the same though. A fund might have no load or transaction fees, but have a higher expense ratio, for example.
Really, I’m just looking for the types of funds I should be in. I’m 33, no debt, and have the money to invest. I don’t think I will need it in the next few years, but who knows. You can sell mutual funds at any time, no?
Some funds really are better than others. Index funds tend to have lower expenses overall because they’re just simpler and more efficient. Vanguard is the firm that pioneered low-cost index funds, and they are (in my opinion) still quite good at it.
This is harder to answer, but, basically, you need to decide on an asset allocation. There are lots of theories about how to come up with a good one, and how aggressive it should be, but the simplest asset allocation (that’s not just all allocated into one sector) is a stock/bond split. Even if you’re very aggressive, you should have some bonds for rebalancing purposes. Your long-run returns will be higher. How much of each is up to you. Personally, I’m about 90/10 stocks/bonds, but I’m planning to increase my bond allocation steadily, probably getting to 75/25 or 70/30 by your age. You can do this with just two funds, a total stock market fund, and a total bond market fund. You can of course diversify into international/domestic stocks, large/small cap, growth/value, real estate, commodities, etc. if you want, and as you learn more. But picking low cost funds and sticking to an asset allocation is worth more in the long run than all that other stuff.
Thanks for the advice. Just a couple of follow up questions. I have been doing the research on different funds and have been looking at several things. I have forgiven a bad return in the last year. I use Scottrade and I do a search for no load, no transaction fee funds. I then look for low expenses. I then try to pick funds that show a good return this year and have a nice mix of small and mid caps.
My question is: Do the names of the funds matter? For example, does Janus or Vanguard or Company X mean anything or I am just paying for the name?
Also, with my $10k, I was going to put about $5k aggressive, $4k moderate, and put $1k in a muni bond fund. Good idea? Too risky; too conservative?
I understand that nobody is giving me financial advice. I’m obviously a noob here and just want to make sure that I’m not way off base. Thanks again.
If it were me (I’m 42) I’d do 80% aggressive, 20% muni for the next 10 years and then start shifting it gradually over the following 10 or so to 10% aggressive, 40% moderate, 50% muni. But that’s just me. The longer you can leave it in a higher risk fund, the greater chance that higher risk transforms into higher gains. Just remember, it’s a roller coaster ride. When the car takes a dive, you’re only going to get hurt if you try to get off.
This might count as trying to “time the market,” but consider putting the money away and when times like October 2008 roll around, take it out of the bond fund and go all in to an equity fund while the share prices are bottomed out. Enjoy the ride as the market recovers (but make sure you can ride for a few years).
Consider investing with Vanguard. As mentioned, they have a variety of very low cost index funds* which will allow you to construct a good portfolio. As a starting point, consider using the following:
Vanguard Total Stock Market Index Fund Investor Shares (VTSMX) – A fund that buys a little of each of 3,000 different US stocks. (Higher average returns in the long run, but year-to-year value will vary more.)
Vanguard Total Bond Market Index Fund Investor Shares (VBMFX) – A fund that buys a little of a whole bunch of investment grade corporate bonds. (Lower average returns in the long run, but year-to-year value will vary less.)
Allocate your money between these two depending on how aggressive you wish to be. If this money is “extra” and you do not need it for a specific time or purpose, consider going as high as 80% stocks and 20% bonds.
Many people will adjust their holdings each year to “rebalance” to whatever ratio they desire. So, if stocks have gone up and bonds have gone down, they will sell some of the stock fund and buy some of the bond fund in order to get back to an 80:20 ratio (or whatever their target allocation is.)
Also, check something called the “distribution date”. This is when the fund distributes gains to the owners. It is basically an accounting formality (i.e. the value of your investment doesn’t change), but you may end up paying tax on it. So, if you buy a stock fund the day before an annual distribution is made, you will end up paying tax on the whole year’s gains. If you are close to the distribution date, it may be better to wait until after to invest. Whatever fund company you decide to deal with should be able to explain this to you. If not, invest with a different company.
Good luck. Hopefully wealth awaits you.
Index funds are passively managed, which means they automatically buy and sell stocks to keep their portfolio matched up with whatever index they are “tracking”. Actively managed funds are those where the manager does research to decide what stocks to buy or sell. Annual expenses (which reduce your returns) vary a lot, but are typically around 0.20% of your assets for an index fund, and around 2% of your assets for an actively managed fund. If the active manager beats the index by more than 2%, he (or she) made you more money than he cost you. Unfortunately, most managers do not beat the index in a given year, and even fewer do so for any prolonged period of time.
Here’s a bit fromWikipedia:
**Founder and former chairman John C. Bogle is credited with the creation of the first index fund available to individual investors, the popularization of index funds generally, and driving costs down across the mutual fund industry.
Vanguard is unusual among mutual-fund companies since it is owned by the funds themselves. In this structure, each fund contributes a set amount of capital towards shared management, marketing, and distribution services. The company says that this structure better orients management towards shareholder interests. Other mutual-fund sponsors are expected simultaneously to make a profit for their outside owners and provide the most cost-effective service to funds for their shareholders…**
My advice for some who wants the simplicity of a single fund is Vanguard’s LifeStrategy Moderate Growth.
It’s a blend of several Vanguard funds:
35% Total Stock Market Index (U.S.)
30% Total Bond Market Index
25% Asset Allocation Fund
10% Total International Stock Index
It’s an automatically “rebalancing” fund. (It’s usually a good idea to “rebalance” your percentage of stocks/bonds/international every few years and move money from what’s been doing great to what’s been doing lousy)
Because the Market is way down, I would actually recommend Vanguard’s LifeStrategy Growth Fund for the next five years or so. It has more stocks and less bonds than Moderate Growth.
The Asset Allocation Fund included in the LifeStrategy Funds is actually an “actively” managed fund, which is something that Vanguard doesn’t officially endorse, but which many people find comforting.
This is called performance chasing, and it’s not going to increase your returns. Don’t buy a fund because it performed well in the recent past. Buy it because it’s an asset class that you want, and it has low expenses.
Over time, reversion to the mean means that funds that have done well in the near past are more likely to do poorly in the future. By buying something that’s just gone up, you’re effectively buying high (higher, anyway).
Thanks for all of the good advice. One more question; I need some help comparing apples to apples. OK:
Fund1: No transaction fee, but a 1.0% expense ratio
Fund 2: $17 transaction fee, 0.1% expense ratio.
Tell me if I am computing these costs right. For simplicity, we will assume a $1000 investment and a 10% first year return. In fund #1, I would have an initial balance of $1000 and after year one, I would have $1100, but I would have to subtract 1% for expenses, leaving me with $1089. Then if I wanted to cash out, then there is no transaction fee, so I have $1089 of liquid funds?
Fund $2: I lose $17 upfront, so I start with $983. After year #1, I gain 10% giving me $1081.30 and then I would subtract my .1 expense fee giving me $1080.21. However, if I wanted to cash out, I would pay another $17 transaction fee, leaving me with $1063.21 of liquid funds?
I have several funds, most of them in Vanguard, as they have one of the lowest expense ratios, and have a huge number of funds. That, of course, might make it more difficult to choose. If you want a good index fund, try Vanguard’s 500 Index.
One piece of advice: As you are in for the long term, absolutely do not look up the performance of each fund every day, every week, or even every month. As they will fluctuate all over the place, you will be a nervous wreck when they go down. Historically, stocks have always gone up over the long term. Maybe once a year, you can evaluate them and see if it might be prudent to chance to a differenct fund.