I've recently started researching cautious investment opportunities such as passive index tracker funds. I'm wondering if a lot of HN users are already using such financial vehicles for their savings? If so, how do you choose what funds to buy units in? And lastly, any tips?
Thanks!
1. "A Random Walk Down Wall Street" - Burton Malkiel
2. "Fooled by Randomness" - Nassim Taleb
3. "The Little Book of Value Investing" - Christopher Browne
I started off with vanguard ETFs indexing the whole market, then after a year or so read about measures of long-term valuation like CAPE and started buying into country-specific ETFs that seemed undervalued by those metrics, then kept reading about value investing, portfolio theory, etc, and am now mucking around selecting and buying stocks of individual companies. This is not necessarily a sound investment idea, or a good use of time, but is something of a hobby.
If you do use Vanguard, there is VFINX that is similar.
The reason index funds are so popular is because they consistently beat the other high cost mutual funds and their costs/fee are much lower.
2. Diversify across countries/asset classes. ETFs help. Or adopt a core-satellite strategy (most in some solid cheap broad ETF, a few chunks into more speculative investments.)
3. Be aware of distinction between real/nominal returns (inflation), gross/net returns (fees), total/price returns (dividends).
4. If a bank (or any commission based advisor) recommends it, your first instinct should be: RUN
90% VOO
10% BNDThere's a couple book recommendations in other comments that mention some famous great books about investing. "The Intelligent Investor" for example is the classic to read on the subject. Just a heads up, many of these books about investing are about actively investing yourself, in particular picking stocks yourself, which has almost nothing to do with investing via broad passive index funds. I'm not saying don't read those books, please do research. However I just wanted to write a heads up: many people who read these books with a goal to learn more investing in general and who prefer to stick with broad passive index funds for their own money, well somehow almost everyone I see who reads these books ends up starting to try to actively pick stocks afterwards anyway. So I fully agree do a lot of research, learn about investing as much as you can and read any/all books that might interest you. Just wanted to give the warning before you do read these books...that as good as those books are on investing, they are also like gateway drugs that often make people want to try their hand at picking stocks and timing the market after they read them. Ultimately it's your money and up to you.
Another option, in addition to reading online and reading books, is to look into hiring a registered professional investment advisor help give you more in-depth information and answers that are specific to your situation.
Some investment advisors work off a percentage of your assets and they invest your money on your behalf but there are also many many other registered investment advisors who just work for an hourly fee when you go to meet them and they don't even offer any investing services at all. They offer information and knowledge about investing, the meeting is 1 on 1, and they charge by the hour or by how long the session takes.
One reason I recommend looking into a fee-based advisor like this is to answer your questions but also provide answers that are specific to you; based on things like your age, your goals, any other assets you have (like a home), factoring in if you have a 401(k) or something like it through your employment, etc...Of course a professional can answer your questions about various funds too, but there is a host of other issues to consider when picking passive index funds. For example tax-advantaged investing is going to be unique to you. You want to avoid overpaying taxes on investment gains, many people get this wrong without professional assistance and could have saved a lot of money had they set things up right earlier. Likewise, what State you live in or if you own a home might affect which types of passive index funds make sense for you. Just another thing maybe worth researching as you go through your due diligence. Best of luck.