I've come to this site, and read great advice on many different topics. Figured try my luck with this topic: Starting to Invest
Currently I'm 28, with no significant debt. I contribute 13% to my employer 401K and do have a former 401K/Roth from my previous employer that I just transitioned to an IRA (traditional/Roth separated through Fidelity).
I have been doing a lot of research. Recently on the auto-adviser applications like Betterment and Wealthfront- They are sort of- set it and forget it- type applications, that auto-rebalance, and do tax loss harvesting (don't think I'm that significant yet). Being young, and more willing to take on risk, the 90-10 split seems to be the standard, but on these 2, have not been performing that well recently (seems to be due to ~45% of the stock portion in the international markets). You can't pick the allocation of money, but the ETF's that you are given seem to be standard (ie Betterment using VEA and VWO as two of them).
My initial start off that I want to put in is around $7K, but I want to also be able to contribute $3-500 a month. Getting some advice that just opening an account with Schwab and personally picking some stocks and ETFs might be the way to go, but I then worry about the fees from the transactions as I'm not a big balance account in the beginning.
Any advice is greatly appreciated.
The downside is spending $75 on a Vanguard index fund.
Take this as an example. The robo says you should be 60% stock, 25% bond, 15% cash. Cash being there as a safety net. Except it isnt, because you cant withdraw it. If you go to withdraw 5% of your portfolio and want it all from the cash, you cant do it. Rather, they'll sell some of your stocks and bonds and keep your allocation flat. Moreover, Schwab puts people in a low yielding proprietary cash fund -- ie Schwab is basically skimming.
both easy reads.
both books are still as relevant today IMO as the day they were written.
Right now I'd be careful with robo advisors because I think a lot of algorithms are going to need revision.
Take this as an example. The robo says you should be 60% stock, 25% bond, 15% cash. Cash being there as a safety net. Except it isnt, because you cant withdraw it. If you go to withdraw 5% of your portfolio and want it all from the cash, you cant do it. Rather, they'll sell some of your stocks and bonds and keep your allocation flat. Moreover, Schwab puts people in a low yielding proprietary cash fund -- ie Schwab is basically skimming.
I saw that in my research regarding Schwab's robo adviser specifically. Up to 15% of the holdings in a low interest account in Schwab's name. In Bettermet for example, for wealth growth, the 90/10 split is:
US Total Stock Market: VTI 16.2%
US Large-Cap Value: VTV 16.2%
US Mid-Cap Value: VOE 5.2%
US Small-Cap Value: VBR 4.5%
Developed Markets: VEA 37.5%
Emerging Markets: VWO 10.5%
Inflation-Protected Bonds: VTIP 0.0%
Short-Term Treasuries: SHV 0.0%
Municipal Bonds: MUB 5.5%
US Corporate Bonds: LQD 0.6%
International Bonds: BNDX 2.4%
Emerging Markets Bonds: EMB 1.6%
With nothing held in cash. Thanks again for the comments.
Written by the "Bogleheads" which is a great forum on investing. Check it out.
I could buy that it has value at 15 basis points for $100+k accounts, in particular for people who cant be bothered. I just think Vanguard will eventually blow everyone out of the water. They have a robo advisor already. .30% fee, $50k minimum. The history of Vanguard is that they will cut fees drastically if they are not actually necessary to maintain the product. So their broad us equity funds are now in the .05% range. Ultimately I think Vanguard gets pretty close to that for their robo advisor, if not making it altogether free.
My expenses per year used to be less than 1% of the portfolio, now they are lower than .5%. To me focusing on keeping your expenses low and sticking with a simple strategy are the big things. I even limit myself to no more than 15 stocks/etfs/financial instruments. Even that number is too high IMO and I currently only own 1 stock and 6 ETFs.
You don't beat the market, at least not with any consistency. My advice is to keep it simple.
My expenses per year used to be less than 1% of the portfolio, now they are lower than .5%. To me focusing on keeping your expenses low and sticking with a simple strategy are the big things. I even limit myself to no more than 15 stocks/etfs/financial instruments. Even that number is too high IMO and I currently only own 1 stock and 6 ETFs.
You don't beat the market, at least not with any consistency. My advice is to keep it simple.
This is the way I've been leaning. My only question would then become, my preference would be to start off with my initial investment (around $7K to start), then every paycheck be able to keep increasing what I have invested (around $200-$400 a paycheck). For something like a Vanguard ETF would my preference of periodically paying into it hurt me with all the fees I'd incur. At a place like Schwab it seems there is a flat rate for each transaction, so I'd imagine that would be very detrimental over the course of a year.
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. At a place like Schwab it seems there is a flat rate for each transaction, so I'd imagine that would be very detrimental over the course of a year.
That's why you should invest in no load low cost mutual funds rather than ETFs. The ETFs incur the transaction fee.
US Total Stock Market: VTI 16.2%
US Large-Cap Value: VTV 16.2%
US Mid-Cap Value: VOE 5.2%
US Small-Cap Value: VBR 4.5%
Developed Markets: VEA 37.5%
Emerging Markets: VWO 10.5%
Inflation-Protected Bonds: VTIP 0.0%
Short-Term Treasuries: SHV 0.0%
Municipal Bonds: MUB 5.5%
US Corporate Bonds: LQD 0.6%
International Bonds: BNDX 2.4%
Emerging Markets Bonds: EMB 1.6%
Why would you want to hold the Total Stock Market, and then the Large, Mid and Small Cap Markets ??
And why so heavy into Bonds ?? They are broadcasting higher Rates this year, which would drive down the value of anything you buy today. International Bonds = Big Risk.
Vanguard Star fund has min investment of $1,000. Beyond that, they're funds are $3K and up min investment depending on the fund. Some funds have a general version that converts to Admiral Shares (lower expense ratio) once you reach $10K invested in that particular fund, or you can start with the Admiral Shares if you have $10K or more to invest at the start.
I never use them.
Schwab helps you create an ETF portfolio based on your needs/risk tolerance. ETFs have low expense ratios, but Schwab has some of the lowest in the industry (even lower than Vanguard). Free trades/commissions for their ETFs, so it does not cost anything when you have the re-balance your portfolio every so often.
If you want to do stock trading, Robinhood is probably your cheapest bet...
VTI
VXUS
VNQ
VTI
VXUS
VNQ
That's my threesome (Im sure I didnt invent it). .05%, .13%, and .12% expense ratios, respectively. On $10k invested you're probably paying $9-10 a year in expenses. Deal of the century.
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you can also create a well diversified portfolio with three simple Vanguard ETFs:
VTI
VXUS
VNQ
That's my threesome (Im sure I didnt invent it). .05%, .13%, and .12% expense ratios, respectively. On $10k invested you're probably paying $9-10 a year in expenses. Deal of the century.
Now would this be going and setting up the account through Vanguard? One thing I am seeing in some of my research is that it might be smarter to wait til my initial investment can be $10K, instead of the ~$7K I'm OK with doing now. That might help with minimums and avoiding fees.
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What kind of funds does your current employer offer in the 401K ?? What their Expense Ratio ??
Do they have a Company Match ??