Club PA 2.0 has arrived! If you'd like to access some extra PA content and help support the forums, check it out at patreon.com/ClubPA
The image size limit has been raised to 1mb! Anything larger than that should be linked to. This is a HARD limit, please do not abuse it.
Our new Indie Games subforum is now open for business in G&T. Go and check it out, you might land a code for a free game. If you're developing an indie game and want to post about it, follow these directions. If you don't, he'll break your legs! Hahaha! Seriously though.
Our rules have been updated and given their own forum. Go and look at them! They are nice, and there may be new ones that you didn't know about! Hooray for rules! Hooray for The System! Hooray for Conforming!

Index Funds for newbies

DrakeonDrakeon Registered User regular
So I've been increasingly interested into starting an index fund for myself, after doing a little research, but not enough to know where to start. So PA, how does one get started with investing in an index fund? Can I do it at a local bank? Do I need to go to an investment group? Any links to helpful sites would also be appreciated. Tried googling it myself and wasn't coming up with a lot.

PSN: Drakieon XBL: Drakieon Steam: TheDrakeon

Posts

  • VeritasVRVeritasVR Registered User regular
    What's your goal?

    Is this fund going to be for retirement through an IRA? Is it just going to be for regular investing? Is it part of an employer's 401k?

    These determine where you will start.

    CoH_infantry.jpg
    Let 'em eat fucking pineapples!
  • schussschuss Registered User regular
    I think Vanguard is basically the standard. Just look for the index you want (S&P 500 etc.) then buy the index fund with the lowest fee percentage.

    a5ehren
  • DeebaserDeebaser on my way to work in a suit and a tie Ahhhh...come on fucking guyRegistered User regular
    Pretty sure that would be Ticker "VOO"

    YOLO. Swag. Whatever. Fuck it. Lets do this.
  • DrakeonDrakeon Registered User regular
    VeritasVR wrote: »
    What's your goal?

    Is this fund going to be for retirement through an IRA? Is it just going to be for regular investing? Is it part of an employer's 401k?

    These determine where you will start.

    Hmm, probably regular investing or retirement, but I didn't realize they were different TBH. I'll have to give this some thought. Do they typically require a large sum of money to start?

    PSN: Drakieon XBL: Drakieon Steam: TheDrakeon
  • zepherinzepherin Registered User regular
    edited January 2014
    There are a few ways to do it, are you looking for a way to preserve wealth or do you want an investment you can't touch till your 60s, but is tax advantaged? You may also be interested in an Exchange Traded Fund. They can be bought and sold like regular stocks, and they index the market. So pretty much any online broker can get them.

    zepherin on
  • Liquid HellzLiquid Hellz Registered User regular
    edited January 2014
    I believe index fund is quite similar to an ETF. Vanguard makes some good low cost ETFs. You can get ETFs that track certain indexes, part of an index, focus on specific countries or market sectors, etc. You buy and sell ETFs similar to stocks which makes them very easy to get into and out of. Most major banks will allow you to set up investing accounts or IRAs, etc. My bank charges $60 a year for an investment account which allows me to buy and sell stocks (ETFs) right on their website. Pick one or two you think will do well and buy them. Prices range from $30 per share to well over $100 so no it does not cost much to get started.

    Liquid Hellz on
    What I do for a living:
    Home Inspection and Wind Mitigation
    http://www.FairWindInspections.com/
  • Alistair HuttonAlistair Hutton Dr EdinburghRegistered User regular
    Drakeon wrote: »
    VeritasVR wrote: »
    What's your goal?

    Is this fund going to be for retirement through an IRA? Is it just going to be for regular investing? Is it part of an employer's 401k?

    These determine where you will start.

    Hmm, probably regular investing or retirement, but I didn't realize they were different TBH. I'll have to give this some thought. Do they typically require a large sum of money to start?

    Your investment goal is very important, it defines the time scale over which you'll be investing and, combined with your tolerance for risk, it will define what asset classes you will select.

    I have a thoughtful and infrequently updated blog about games http://whatithinkaboutwhenithinkaboutgames.wordpress.com/

    I made a game, it has penguins in it. It's pay what you like on Gumroad.

    Currently Ebaying Nothing at all but I might do in the future.
    a5ehren
  • zepherinzepherin Registered User regular
    I believe index fund is quite similar to an ETF. Vanguard makes some good low cost ETFs. You can get ETFs that track certain indexes, part of an index, focus on specific countries or market sectors, etc. You buy and sell ETFs similar to stocks which makes them very easy to get into and out of. Most major banks will allow you to set up investing accounts or IRAs, etc. My bank charges $60 a year for an investment account which allows me to buy and sell stocks (ETFs) right on their website. Pick one or two you think will do well and buy them. Prices range from $30 per share to well over $100 so no it does not cost much to get started.
    So on the topic of fees. Brokers are going to get paid, so let's talk about how. One is a yearly flat fee. Like the above bank. I personally use fidelity which has a fee per trade. So it's 8 bucks when you buy or sell. But I don't trade frequently. The last is a percent of the stock value. 401ks do this and it is usually listed as load. As a best practice don't do retirement contributions in funds with a load over 0.9 percent.

  • CycloneRangerCycloneRanger Registered User regular
    Go read "The Intelligent Asset Allocator" by William Bernstein before you attempt any of this.

    Once you know what you actually want to buy, you can buy shares in an index ETF from any brokerage account. I'm not entirely sure how you go about buying shares in a traditional index fund; I think you will probably need an account of some kind with whatever company is managing the fund. There's usually a minimum investment amount with those as well.

  • NewblarNewblar Registered User regular
    edited January 2014
    Generally speaking index funds are better for new investors with small investments than ETFs as the percentage charge on the portfolio is usually less than the per trade charge for an ETF when you don't have a large portfolio. This is especially the case if you want to setup automatic investments or make alot of buys which is common for new investors. Index funds also have another benefit over ETFs in that you can hold fractions of shares which again is really useful when you have a small portfolio particularly if you setup dividends to be reinvested. It will vary but I think I've heard that ETFs don't become a more efficient option until you reach a portfolio of 30-50K and to be honest I'm not sure what they would do for automatic investment withdrawls.

    To the OP, I'm not in the States so I don't know anything about Roth investments and such but you really need to figure out your investment timeline, goals and risk tolerance etc as this will affect what you want to invest in. Generally speaking anything stock related including index funds should have a time horizon of at least 5 years possibly even 10+ depending on your risk tolerance. I'll suggest a book called Millionaire Teacher which provides some basics for understanding investing and from what I remember provides some country specific investment portfolios but I don't think it deals with Roth's and such. While Canadian specific the following link also provides some information on index and EFT investing just so you can get some general knowledge of investing and index funds/ETFs to start with.

    http://canadiancouchpotato.com/

    Please note we are in a bit of an unusual time so while all the sources I mentioned highly recommend balancing your portfolio with bond funds of typically 40% of your portfolios value, whether that is a good idea or not I'm not entirely sure and struggling with myself.

    Biggest thing is that however you buy don't let a financial planner basically steal from you. I'm in Canada and the rates, transfer/liquidation fees, holding time minimums are frankly predatory. Its ridiculous to pay even 1-2% of your portfolio forever when the only advice you've ever received was being given a copy of an easily downloadable questionnaire. Granted if you have the need for it a financial adviser (not a glorified salesman that knows less about investing than any decently informed investor) that actually advises you can be worth their weight in gold. I don't personally have the need for one at the moment but may in the future and will most likely use a fee only one as there is much less conflict of interest.

    Newblar on
    [SIGPIC][/SIGPIC]
  • TehSlothTehSloth Hit Or Miss I Guess They Never Miss, HuhRegistered User regular
    Drakeon wrote: »
    VeritasVR wrote: »
    What's your goal?

    Is this fund going to be for retirement through an IRA? Is it just going to be for regular investing? Is it part of an employer's 401k?

    These determine where you will start.

    Hmm, probably regular investing or retirement, but I didn't realize they were different TBH. I'll have to give this some thought. Do they typically require a large sum of money to start?

    Your investment goal is very important, it defines the time scale over which you'll be investing and, combined with your tolerance for risk, it will define what asset classes you will select.

    Also if it's specifically for retirement there are different tax-advantaged ways you can set things up, either a traditional IRA or Roth IRA. There will be some hefty penalties (moreso on the former) if you end up needing to withdraw the money before retirement.

    FC: 1993-7778-8872 PSN: TehSloth Xbox: SlothTeh
    twitch.tv/tehsloth
  • JohnnyCacheJohnnyCache Starting Defense Registered User regular
    An index fund is something specific- a fund slaved to one of the indexes like the S&P, Dow, or Nasdaq.

    They're good because they're rebalanced for you by computer and so have lower overhead than a lot of other funds, and are generally a fairly safe investment.

    You sound like you're looking for general investing guidelines, though...

  • Alistair HuttonAlistair Hutton Dr EdinburghRegistered User regular
    An index fund is something specific- a fund slaved to one of the indexes like the S&P, Dow, or Nasdaq.

    They're good because they're rebalanced for you by computer and so have lower overhead than a lot of other funds, and are generally a fairly safe investment.

    You sound like you're looking for general investing guidelines, though...

    Please be defining what you mean by safe.

    If you mean safe as in the people running the index tracker will not run off with your money then I agree with you.
    If you mean safe in that you won't see the value of your investment half in value in a couple of hours then 2008 is calling and it's saying "Waaaahahomgomgomgfuckfuckfuck".

    I have a thoughtful and infrequently updated blog about games http://whatithinkaboutwhenithinkaboutgames.wordpress.com/

    I made a game, it has penguins in it. It's pay what you like on Gumroad.

    Currently Ebaying Nothing at all but I might do in the future.
  • JohnnyCacheJohnnyCache Starting Defense Registered User regular
    An index fund is something specific- a fund slaved to one of the indexes like the S&P, Dow, or Nasdaq.

    They're good because they're rebalanced for you by computer and so have lower overhead than a lot of other funds, and are generally a fairly safe investment.

    You sound like you're looking for general investing guidelines, though...

    Please be defining what you mean by safe.

    If you mean safe as in the people running the index tracker will not run off with your money then I agree with you.
    If you mean safe in that you won't see the value of your investment half in value in a couple of hours then 2008 is calling and it's saying "Waaaahahomgomgomgfuckfuckfuck".

    I can't answer because I'm parking your call from the gambler's fallacy, and your order confirmation from the company that makes mason jars for burying your cash out back.

    Short term market performance matters a hell of a lot if you're 59. Not if you're 25 and buying things with every intention of forgetting you own them.

    Money invested in indexes in 1970 was still delivering retirement level ROIs in 2008. And oddly, index companies tend to be survivors (it's a criteria for index selection) so a person who delayed their retirement for a few additional years because of events in 2008 would now be nearly restored to pre-bubble levels of assets.

    Indexes, in safety, are definitely on the conservative slope of the stock risk bell curve.

    Worth noting that the some of the most conventionally conservative instruments in the wake of the 2000 tech bubble would have been default swap insured derivatives...would you rather have your money in them or asset rich index companies in 2008? I'll vote with buffet and buy something that owns tangibles.

    davidsdurions
  • Alistair HuttonAlistair Hutton Dr EdinburghRegistered User regular
    edited January 2014
    An index fund is something specific- a fund slaved to one of the indexes like the S&P, Dow, or Nasdaq.

    They're good because they're rebalanced for you by computer and so have lower overhead than a lot of other funds, and are generally a fairly safe investment.

    You sound like you're looking for general investing guidelines, though...

    Please be defining what you mean by safe.

    If you mean safe as in the people running the index tracker will not run off with your money then I agree with you.
    If you mean safe in that you won't see the value of your investment half in value in a couple of hours then 2008 is calling and it's saying "Waaaahahomgomgomgfuckfuckfuck".

    I can't answer because I'm parking your call from the gambler's fallacy, and your order confirmation from the company that makes mason jars for burying your cash out back.

    Short term market performance matters a hell of a lot if you're 59. Not if you're 25 and buying things with every intention of forgetting you own them.

    Money invested in indexes in 1970 was still delivering retirement level ROIs in 2008. And oddly, index companies tend to be survivors (it's a criteria for index selection) so a person who delayed their retirement for a few additional years because of events in 2008 would now be nearly restored to pre-bubble levels of assets.

    Indexes, in safety, are definitely on the conservative slope of the stock risk bell curve.

    Worth noting that the some of the most conventionally conservative instruments in the wake of the 2000 tech bubble would have been default swap insured derivatives...would you rather have your money in them or asset rich index companies in 2008? I'll vote with buffet and buy something that owns tangibles.

    I'm fairly certain we are basically on the same page but I am very averse to the use of the word "safe".

    I am absolutely and utterly not saying that you should be putting your cash under the mattress. I am saying that on the risk spectrum for mainstream investments then equities are absolutely the riskiest asset class. As in, on the prospectus document for any Equity index fund the risk category for that fund will be at the highest end of the spectrum. For example, here is Vanguard's UK-All Share Index Tracker http://documents.financialexpress.net/Literature/9979196.pdf on a 7 point scale it's rated a 6 for risk.

    This is not to say that you shouldn't invest in equities, quite the opposite, with higher risk comes higher returns and for long term retirement planning you would absolutely have to be invested in equities and my chosen method for doing so would be through index funds (Disclaimer: I am not an investment professional).

    But this is why, before investing in anything, you must have an investing goal, time frame and an understanding of your attitude to risk. Because whilst some people are saving for retirement and can postpone retirement to ride out a market dip other people may be investing for other, more time sensitive reasons - say the capital repayment date of their interest only mortgage - and so do not have the flexibility of postponing drawdown of their investment funds. And even for those people who can afford to postpone a few years, what happens if there's a 10 year market dip? It's happened before and there's nothing to say that it can't happen again. Inflation adjusted there have been multi decade periods where the markets have been flat or falling. The nineties saw the most prolonged and extensive bull market in history so 1970 to now still looked rosie even at the bottom of the 2008 nadir, but 1955 to 1985, say, didn't look so hot.

    So you are correct that short term-market performance matters not if you are fully intending to hold the investment for 30 years. But. Some people, upon seeing their index fund half in value will panic and pull the money out because they do not have the tolerance for risk that they think they do even though long term the absolute correct thing to do is to keep that investment where it is because it's got another 20 years to recover it's value. And, as they approach their investment goal/end-date then their money needs to be in less volatile asset classes because as you say short term performance matters when you only have a short horizon. For long term investing, especially for retirement investing, you have to have a grasp on the different asset classes and the purpose they serve in building up the target level of funds at the end of your investment period.

    Alistair Hutton on
    I have a thoughtful and infrequently updated blog about games http://whatithinkaboutwhenithinkaboutgames.wordpress.com/

    I made a game, it has penguins in it. It's pay what you like on Gumroad.

    Currently Ebaying Nothing at all but I might do in the future.
  • JohnnyCacheJohnnyCache Starting Defense Registered User regular
    every, single equity instrument is going to be more risky then the entire classes of intrinsically more conservative instruments that exist, very true.

    Which is why I asked him if he was really sure he wanted advice on index funds, specifically. If he's just wondering "Hey I'm a young guy just getting some retirement match, where do I stick it" I'd say a vanguard target year fund is basically investing on autopilot.

  • a5ehrena5ehren AtlantaRegistered User regular
    Also note that ETFs and Mutual Funds are different things. The general thinking seems to favor Mutual Funds for retirement accounts for a variety of reasons (easier to setup auto-investments, can buy fractional shares, dividends can be re-invested automatically, etc) while ETFs are favored for "normal" accounts because it is easier to manage taxes apparently. I currently have all my stuff in tax-advantaged retirement accounts, so I can't speak to that.

  • FafnerMorellFafnerMorell Registered User regular
    Short answer: Go to Vanguard (as recommended earlier).

    More involved answer: Google for "Bogleheads". Read parts of their wiki. If you have questions, they have a forum (sometimes they're a little skeptical of new folks - they get a lot of "I just found $20 million on the sidewalk and want to invest it so I'm richer than Warren Buffet", but a LOT can be learned just by lurking).

    Important advice: Dollar Cost Average (i.e. don't make a single, lump-sum amount) - set up something that will deduct 5% (or something) from each paycheck. In this case, a mutual fund works better than an ETF. If you don't want to do this (maybe you just got a large amount of money and don't have a job), make an investment plan to deduct at regular times (say, every month for N years). The reason is that shortly after you invest, the market will drop (Murphy's Law) - HOWEVER, if you stick with investing for a long period of time, the ups and downs of the market will matter very little, if at all. The important thing is to keep investing in good and bad times, and to stick with a stable plan.

    Six
  • VeritasVRVeritasVR Registered User regular
    edited January 2014
    Short answer: Go to Vanguard (as recommended earlier).

    More involved answer: Google for "Bogleheads". Read parts of their wiki. If you have questions, they have a forum (sometimes they're a little skeptical of new folks - they get a lot of "I just found $20 million on the sidewalk and want to invest it so I'm richer than Warren Buffet", but a LOT can be learned just by lurking).

    Important advice: Dollar Cost Average (i.e. don't make a single, lump-sum amount) - set up something that will deduct 5% (or something) from each paycheck. In this case, a mutual fund works better than an ETF. If you don't want to do this (maybe you just got a large amount of money and don't have a job), make an investment plan to deduct at regular times (say, every month for N years). The reason is that shortly after you invest, the market will drop (Murphy's Law) - HOWEVER, if you stick with investing for a long period of time, the ups and downs of the market will matter very little, if at all. The important thing is to keep investing in good and bad times, and to stick with a stable plan.

    Eh, the concept of Dollar Cost Averaging is probably a more advanced topic than what he's looking for. It might not be all that great either.

    VeritasVR on
    CoH_infantry.jpg
    Let 'em eat fucking pineapples!
Sign In or Register to comment.