Hey!

I'm 24. I don't have any outstanding debt, and I just finished funding my emergency fund. With that said, I think I'm ready to start investing. After reading up a bit, I'm interested in investing in mutual funds through Vanguard. I've got $3000 for my initial investment, which is good, given that that seems to be the minimum to invest in a lot of Vanguard funds. Looking at their fund offerings, though, I'm pretty much overwhelmed. I wondered, then, if there might be any funds you folks might recommend. Having a shorter group to research will help to stem the brain hemorrhage that I got from looking at that funds list. . .

Thanks!

Welcome Liv!

Congratulations on saving for your future at such a young age. You will be glad you did.

I recommend putting the entire amount into a Roth IRA. That's most likely the best idea for someone your age.

I also recommend you check out the target date retirement funds - pick the one that corresponds to the date that you're likely to retire, and then you're all set, no active involvement needed.

Next, I recommend you set up automatic investments - have Vanguard withdraw money from your bank account every month to max out your Roth IRA. That way you don't have to think about it at all.

If you're looking for more active investments, I STRONGLY suggest you read a few good books! "A Random Walk Down Wall St." is a fantastic book that will give you a great idea of which direction to head in.

Remember: There are a ton of funds out there, but don't let that discourage you! They all serve particular purposes, and some investors have a use for them. Most people should keep their investments simple, e.g. in index funds, and they don't need to know jack about the more exotic investment beasts out there.

The easy answer for someone your age is the Vanguard Total Stock Market Index Fund (VTSMX). But it's really important that you understand why you're doing something, rather than just taking advice from random strangers on a personal finance forum.

I'll echo flinch13's advice about putting your money into a Roth IRA. But I'll hold back on agreeing that a target retirement fund or automatic investments is the best thing to do. I happen to like thinking about where my money goes. If you want to just "set it and forget it," then flinch13's advice is sound. I prefer to understand what I'm doing and take a more active role in my investing.

Check out The Whole Story at the Transparent Investing web site. It's only 53 pages (including table of contents) and is a pretty easy read. And it may also be the only real education you need in investing. Just take it slow. If some of it seems confusing, stop and think about it for awhile, then continue reading. If you have more questions after that, feel free to come back and ask questions here.

The first sentence is good advice. The second is the is the best advice you will ever hear about anything in your life. There is enormous value in understanding what you do, thinking for yourself, and making decisions on your own. No one knows what matters to you better than you do.



Just to add the voice of another stranger...I like the Roth IRA as long as you are eligible. I also suggest the Total Stock Market fund for the reason that Vintek says - you will be thinking about what you are doing rather than just being passive. But the reality is that the target retirement fund is going to be almost 100% in stocks for a person your age so it really hardly matters until you get into middle age.

But if you just want to narrow down the choices so that you can research them, I suggest sticking with the funds with "index" in their name as well as the target retirement fund of the appropriate year. That will give you a list of a dozen of so funds that should be educational to research.

Good luck

Agree with the advice on index funds. There are two main reasons to favor index funds for a long-term investment:

1) Over the 40+ years you have between now and retirement age, index funds are likely to outperform any managed fund and probably most individual stock investments as well. Managed funds can give you much better results over the next few years, but you don't care about performance over the next few years. You care about the value of your investments when you get close to retirement, and most managed funds underperform the index over the long term even if they beat it in the short term.

2) The management fees for index funds are much lower than actively managed funds, so you'll have less drag on your returns. Over your investment time horizon you can save tens of thousands of dollars in management fees by going with index funds.

The main advantage of using a target date fund is that it lets you "set it and forget it," so you won't have to worry about periodic rebalancing or about shifting your portfolio toward more secure investments as you get older. It really depends on how much time and effort you want to put into managing your money. Some people are interested in learning about investing; others don't care.

I think I'd also go for the Roth (assuming you are eligible) and a low cost index fund (maybe even an ETF), but I wont recommend anything specific.

The good thing about the Roth is that the money you put in is always accessible so it's not really locked into the retirement account.

On funds vs. ETFs, if I were just starting out I'd go with a fund because it's a lot simpler to buy shares. I invested in a couple of index funds for years and then when the amount I had in those funds started to cross over the threshold where ETFs made more financial sense (because the fees for ETFs are even lower), I set up a discount brokerage account and bought some ETFs. A whole different ballgame, much more complicated and intimidating, and it took me a few months of research and reading before I felt like I understood what I had to do, how to submit a bid, how to decide what price to offer, etc. And I got conflicting advice from experienced investors, which didn't help.

Furthermore, because I only buy ETFs once or twice a year, I have to relearn the entire process each time I do it. I find buying ETFs a far more challenging process than buying index funds.

Fidelity offers 30 commission free ETFs, Ameritrade has 100 and Vanguard offers their own ETFs for free, as do other brokerages.

As for bid/offer/ask/etc...it is irrelevant for this example. These ETFs trade hundreds of thousands to tens of millions of shares per day and somebody buying 20 or 30 shares has no effect on the market. Unless you think your ETF is going to find the cure for cancer (of course they are not) in the time between when you hit the "preview" and "buy" button it is usually safe to use a market order.

Maybe, but it took me a long time even just to understand what a market order was. And most of the experts I talked to advised me to never, ever use a market order. There is very little in the way of plain English descriptions of this stuff. People directed me to various online primers and instructions, but most of them assumed prior knowledge of the stock market and used a lot of jargon. I'm a reasonably smart guy, but I found it incredibly frustrating and bewildering to try to learn how to make my first transaction.

It's important to step back and remember what it was like for you as a rank beginner, someone who probably has no idea what a "security" means, or a "put" or a "market order," "limit order," etc. -- all of these terms were unfamiliar to me. It wasn't even clear to me how to pay for my order: with mutual funds, the money was withdrawn automatically from my linked bank account. With my discount brokerage it took a few phone calls to learn that I first needed to transfer funds from my bank to my brokerage account -- this was such basic information that the discount brokerage didn't even cover it on their website. And yet for someone used to buying only mutual funds, how would you know that it works differently with a brokerage if they don't tell you?

Liv,

This above statement is true, but I've always hated the idea. The best thing about the account is that it's tax sheltered. The second best thing about it is the power of compounding. Take that money out and you'll never be able to put it back in. Over a period of years, that's a hefty loss of growth. Better to fund the Roth and except for occasional rebalancing, forget about it. Don't treat the Roth as a potential emergency fund, house fund, wedding fund, car fund, etc. unless you can't afford to do otherwise.

True, but if the alternative is not putting the money into the Roth then this year's funding is lost anyway. It's obviously best not to touch the money in the account but it's good to know that in a real emergency it is there.

But is is not a good place to stash future planned expenditures.

Completely agreed. That's why I stayed out of the other thread where someone wanted to put their emergency fund into a Roth. I just didn't want the OP to fully understand what the consequences were if she pulled her money out early. Remember, your post didn't really address that; it only said she could pull it out and didn't say anything about why it might be a bad idea. Since the OP is a novice, she needs a more complete picture of what a Roth is really for.