I want to start investing in index funds, and am looking at the ever popular Vanguard. I guess what I’m wanting to know is when to jump into these things… All the pundit reviews online scream, “Get into an Index fund now!!!@#”. Ok, but when? I see that VFINX for example (Vanguard 500 Index), is in a little dip currently. I suppose you would buy them like stocks (buy low, sell high), which means I don’t want to chase a fund that’s doing 20%, because, wouldn’t that be too late? I would think a fund like that means the run is over, and I should wait for the drop. Or are Index funds not like that, and should I get into them now anyway?
If a Mod happens to come across this thread, if the title can be corrected from “in to” to “into”, it would be appreciated.
An index fund is a long term investment. You don’t buy shares for day-trading. Buy now, keep it for a few decades, you’ll be set.
Oh, and I heartily recommend Vanguard. Their website is da bomb.
Correct. “Dollar cost averaging” (Google it) is one of the mantras of the same sort of people who like index funds. Those are also people who buy into the Buffet school of investing, which despairs of market timing and just buys and holds.
Fixed the title.
And yes, get into an index fund now. If you were worried that it was a few percent overvalued, you could dollar-cost average over the next few months, but since it has recently dipped, I’d personally just buy as much as you’re going to now, all at once.
One way to look at it is to compare what you think it will return in comparison with other investment choices you have today. This also depends on the amount you are talking about. Are we talking $500, $5000 or $50000?
Does your company match 401(k) plans or offer anyother type of investment?
Do you have an IRA yet?
What about credit cards? If you have ANY balance in those you need to pay them off before you invest in an index fund.
What about life insurance? Would you sleep easier at night if you knew that getting hit by a bus wouldn’t put your family into a poor-house?
What about education? Investing in yourself is often the best thing to do.
The list goes on and on. And this doesn’t even take into consideration things like Portfolio Optimization, Risk Analysis, etc.
But as for Indexed funds go, Vanguard are pretty good. But take a close look at their fees and then compare with others. Also, you might want to look into Exchange Traded Funds (ETFs) which can give you the same exact exposure as a managed index fund, but at lower costs and easier liquidity.
Best-
-Tcat
You might also want to look into ETFs (Exchange-Traded Funds) as an investment choice, here is a good MSN Money article about them and how to get started building a diverse portfolio of them for as little as $100 a month.
I started a portfolio of ETFs using Sharebuilder.com and the strategy outlined in the article and have found that Sharebuilder.com is also a great place to learn more about them.
Upon review, I see that Tomcat is also a fan of ETFs. 
Here’s an airtight, fail-safe strategy. Watch whatever I’m doing, and then do the exact opposite.
(Yes, I just dropped $4000 into my S&P 500 Index Fund two weeks before the current free-fall.)
In all seriousness, I think that now is a good time to enter. The last eight days have been an adjustment to the facts of higher interest rates and higher gas prices. It gives newcomers a chance to buy in at relatively low prices. There’s no sign of a collapse in employment or consumer confidence, so I remain bullish about the rest of the year.
Once you have your money in an index funds, just remember to hold the course. Let’s say you earn 5% during a year. Meanwhile, you have a friend who put his money in caramelicecream.com, Arkansas Nanotechnologies, and Applied Technology Systems and claims that he earned 10% over the same time. You may be tempted to think that you lost out, but you have to remember taxes and fees.
Vanguard charges no fees on index funds, so long as you have a certain minimum amount of cash in the fund. Your friends, on the other hand, must pay fees every time he moves his stocks around. You also pay no taxes until the day that you take money out of the index fund. Your friend pays taxes every time he switches from one stock to another.
About $10k. And if I can afford it, 5k per year thereafter.
Does your company match 401(k) plans or offer anyother type of investment? Yes, but my dumbass didn’t get into it when I should have. Although I suppose I still could.
Do you have an IRA yet? No
What about credit cards? If you have ANY balance in those you need to pay them off before you invest in an index fund. Yes, but are paid in full each month.
What about life insurance? Would you sleep easier at night if you knew that getting hit by a bus wouldn’t put your family into a poor-house? Got that
What about education? Investing in yourself is often the best thing to do. No tolerence for school. If need be yes, but not at the moment.
The list goes on and on. And this doesn’t even take into consideration things like Portfolio Optimization, Risk Analysis, etc. As far as risk goes, I’m 25 and the Risk could be a little higher then average.
Maybe I should go back :). Make that tolerance…
It is worth noting that Buffett did not get as rich as he is by buying an index, however. He is very selective about what he invests in.
The idea that you are guaranteed to a) make money and b) outperform everything else if you buy equities and hold for the long term is also a misconception, put about mostly by investment consultants, who are generally employed as consultants because they lack the talent to make it as money managers. In inflation adjusted terms, there are people who have spent decades under water in their equity investments.
Giving investment advice in a forum such as this, without any reference to the circumstances of those reading the advice, is a very bad idea. However, if you are sure that equity markets are the appropriate place for your cash, I would agree with previous suggestions on “dollar cost averaging”, unless you feel that you have a particular talent for market timing.
Don’t forget, everyone was saying this in Q2 of 2000, just after the minor “correction” that made all those internet stocks “cheap” again. Most of them went on to lose their shirts in 2001-2002. Every market top in history is characterised by another, slightly lower peak shortly after the definitive top. This is the “dumb money” that has missed out on the main rally, desperately trying to get in on the action on what they perceive as a “dip”. Those who believe that a 10% drop makes something “cheap” should bear in mind the adage that every stock that has ever lost 95% did so by losing 90%… and then *halving[/] in price again. The average bear phase in equities lasts 3 or 4 years; an 8 day correction in neither here nor there.
Markets go up when there are more buyers than sellers, obviously. After nearly 3 years of markets going up in a straight line (for a trough-to-peak gain in the S&P of 71%), thanks to buyers overwhelming sellers, how many more potential buyers do you think there are left out there, who want to buy, but still haven’t? Are there more of them than there are shareholders who have made a tidy profit already and are looking for an exit?
With P/E ratios back at historical highs, even as earnings growth is slowing, markets look very expensive compared to their long term average. This is only my opinion (and shouldn’t be construed as investment advice), but I would not be a buyer at these levels (although my pension continues to average in monthly).
This is good advice. So I’ll make it clear now that I am looking for anything anyone has to say on the subject, and understand that anything I do is my responsibility without anyone here on the SDMB to blame. And of course I’ll do my DD before plunging into anything.
Your first question to yourself should be - Why am I saving? Strategy changes if the savings are for eventual purchase of a home vs. saving for retirement.
If it is retirement, get into the 401K at least up to the point where you’ve maxed out your company’s matching. This is 100% free money just sitting on the table waiting for you to take it.
You also should take advantage of a Roth IRA, your after tax investment is tax free when you access it after retirement. If you don’t use the IRA, your profits are taxed. This is money sitting on your table that the government will take if you let them.
Also, from my perspective there is no obvious “right” and “wrong” time to enter the market. There’s no way to know beforehand which way the market is going to go in the short term, it generally goes up over time, that’s about all you can count on.
OK, if saving for long-term (i.e. retirement) then I’d say the IRA, 401k and the rest in higher risk mutual funds (ask Vanguard for things like High Growth) or ETF’s (depending on fees and your tax situation). The S&P 500 index is the middle road for risk. NASDAQ funds are a bit higher risk, so are small-caps and things like the Russell 2000.
What is the Real Estate market like where you are? Any chance to buy a Studio or 1-bedroom pad with a $10k downpayment and $5k a year in mortgage payments? Rent it out to a college student? Build equity, learn about RE, get some tax credits, etc. Have the rent cover the mortgage and just occasionally fix things?
-Tcat
Don’t worry about whether we’re at a current dip or a a high point. If you have the money to put in and you’ve decided that equities are right for you, put it in.
If you are going to regularly put money into the market over the next 20-30 years, it doesn’t make a difference if the money you have right now goes in with the market at 10,000 or 12,000. With a 10K investment right now, it might make a difference of $500 in 2036 dollars.
Also. . .
As it pertains to my investing, the main thing about an ETF versus a passively managed mutual fund that matches the same index is that the mutual fund allows me to reinvest dividends automatically, and allows for recurring contributions at no cost besides the one-time start up cost.
With an ETF, any future purchases are going to require you to pay a commission, and you’ll need to pay to reinvest your divvies.
Here’s a comparison of Vanguard’s VTI (total index ETF) versus Vanguard’s VTSMX (Vanguard total market fund).
The market is close to historical highs right now, but P/E ratios are only slightly higher than their historical means. When the dow was at 11,000 in 2000, they were way out of whack, but not so much right now.
Possibly. The markets are usually iffy between about May/June and October or so. Traditional wisdom is to sit on the sidelines during this period and let things settle down.
First things first. If you aren’t going to need the money shorter term (like for a house) and even if you do need the money short term, get yourself signed up for your 401k at work - ESPECIALLY if they have any match. Capture at least the match - its free money. You do need to tie it up for a while (like 40 years) - but its free money. (Did I mention its free money). And at your age, compounding is your friend.
Anytime your employer wants to give you money, take advantage of it. Usually this is a match on 401ks, but Brainiac4 and I are both fortunate enough to work for companies that also have ESPPs (or ESOPs), take a little out of your paycheck each week, at the end of six months, buy the company stock at a discount from the first or last day of the six month period - whichever is LOWER. Can’t lose. (Well, you can, there is about a two day lag between getting it and being able to trade it, but the risk is small).