Announcement

Collapse
No announcement yet.

Financial Tip of the Day - Investing in the stock market

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

    Financial Tip of the Day - Investing in the stock market

    In several of my other tips, I have used 8% as the rate of return for example calculations. Some folks have responded with comments concerning the viability of that rate of return. Fact is, an 8% return is slightly lower than what the S&P 500 has averaged since 1926 (9% +).

    For those of you unfamiliar with what exactly the S&P 500 represents, it is a capitalization weighted index of roughly the 500 largest publicly traded companies in the US.

    The problem so many investors face when dealing with investing in the “stock market”, is the vast number of choices. There are around 4,000 companies traded on US markets with over 7,500 mutual funds available. That is a lot of choices.

    I will ignore the individual stocks since I believe most of us should not own individual stocks due to risk and diversification concerns. I believe mutual funds and more specifically index funds are the right way to go. They allow for sufficient diversification while minimizing costs, fees and short term risks.

    Why index funds? Actively managed mutual funds have costs and fees that take away from their overall returns. These fees come in all shapes and sizes, but all take away from your returns. Index funds have minimal fees or expenses and you retain 99+% of the returns. And.........

    The fact is that 80% of the actively managed mutual funds fail to beat the market on a yearly basis. That means only 20% manage to beat the market average returns in a single year. In addition, over a 10 year period, almost none of them are able to beat or match the index funds when you factor in fees and expenses.

    So, why search for the needle in the haystack when you can just buy the haystack? That quote comes from Jack Bogle, founder of Vanguard and the first index fund. His book, The Little Book of Common Sense Investing, is great for breaking down the perceived complexities of markets.

    I encourage you to consider index funds and think long term when investing in the stock market. It isn’t sexy with big winners and instant wealth, but rather a proven method over 90+ years. Sure there will be ups and downs, but over a sufficiently long investment window (5+ years) the growth of American companies will result in the growth of your investments and your personal wealth.

    #2
    Great tip - you and I are similar in financial philosophies as you have hit on several staples of a three fund portfolio, boglehead type investor. . Bogleheads all the way.


    Sent from my iPhone using Tapatalk

    Comment


      #3
      Good info

      Comment


        #4
        Appreciate the tip. I just ordered Bogle's book. Thank you.

        Comment


          #5
          Are ETFs in Vanguard worth it? I see some with good performance out 10 yr + with low expense ratio. Just wondering if a little mix of those with index funds is something to consider

          Comment


            #6
            Originally posted by HogHunter34 View Post
            Are ETFs in Vanguard worth it? I see some with good performance out 10 yr + with low expense ratio. Just wondering if a little mix of those with index funds is something to consider
            I personally see no value add in the ETF as a whole. Anything that might, big might, be gained is almost certainly lost in higher, fees, expenses and tax impacts of short term gains.

            Comment


              #7
              Great post. Everyone should read it.

              Comment


                #8
                Best post yet. There is an entire industry who’s paycheck depends on people not following this advice. I’m sure some of those folks will be along here shortly to try and tar and feather your post.

                I highly recommend everyone check out the Bogleheads Guide to Investing. Write down an investment plan and an asset allocation and make investments automatic.

                I have a three fund portfolio. I rebalance quarterly and ignore the news. Works very well for me.

                If you want to dig more into the active vs passive comparison check out the SPIVA scorecard below and start running the probabilities on holding a diversified active portfolio using the underperformance likelihood. A few exercises in that will make it hard to argue against passive index investing.





                Sent from my iPhone using Tapatalk

                Comment


                  #9
                  And please buy in over time, don't try to time it. Dollar cost averaging is your friend. If you want average return, you need an average cost.

                  Sent from my SM-G988U using Tapatalk

                  Comment


                    #10
                    2020 is almost behind us. The markets have been quite the roller coaster, but have seen all time highs with some very solid gains throughout the year. I encourage everyone to start thinking about your financial future today. Good luck and stay focused as you move toward your financial goals.

                    Comment


                      #11
                      SO do you recommend ETF's over say Mutual Funds?

                      My buddy is a investment guy and is younger and says ETF's are the way to go versus the mutual funds I am in now. As they have capital gains/reinvestments that I pay taxes on. And ETF's have alot lower Expense ratio's
                      Last edited by gingib; 11-30-2020, 01:42 PM.

                      Comment


                        #12
                        Tagged.

                        Comment


                          #13
                          weekly drafts for 401k, 529, S&P500 index thru vanguard. Gave up trying to get cute with it. Pay myself first and have time on my side. Plan to have home paid off before kids go to college.

                          Great advice OP. If I can say one thing, get in early and often.

                          Comment


                            #14
                            Originally posted by bbqfan5909 View Post
                            weekly drafts for 401k, 529, S&P500 index thru vanguard. Gave up trying to get cute with it. Pay myself first and have time on my side. Plan to have home paid off before kids go to college.

                            Great advice OP. If I can say one thing, get in early and often.
                            AMEN! Very sound advice.

                            I played around with stocks this year and made good money but majority is what you said above

                            Comment


                              #15
                              Originally posted by gingib View Post
                              SO do you recommend ETF's over say Mutual Funds?

                              My buddy is a investment guy and is younger and says ETF's are the way to go versus the mutual funds I am in now. As they have capital gains/reinvestments that I pay taxes on. And ETF's have alot lower Expense ratio's
                              I see very little value in ETF's for most investors. In general, if you are a long term investor, ETFs result in higher fees and expenses as opposed to index funds. Take a look at the costs of some traditional index funds vs their ETF counterparts and you will generally see higher expense ratios associated with the ETFs. For example, Fidelity's 500 Index Fund (FXAIX) has an expense ratio of .015% whereas Fidelity's New Millennium (FMIL) ETF has an expense ratio of .59%.

                              This is just my opinion and your mileage may vary depending upon individual investment results.

                              Comment

                              Working...
                              X