What Funds To Buy?
So, I spent a little time in my last post harping on the advantages of buying index funds. Let’s say you’re convinced. That’s great, but what do you actually buy? What are the best index funds? There isn’t any one right answer, but I can help lead you to where you want to be. Read on, oh reader…
Let’s cut to the chase: if you’re short on time, and want a nice, simple option, do this:
Your Age In Years = % bonds you should be holding.
Buy this percentage in an total bond market fund.
Put the rest into a total stock market fund. You’re done. Just keep re-balancing this portfolio to keep your asset allocation on track.
If you want to get fancier, you’ll need to read up on asset allocation. I highly recommend this book:
It pretty much covers everything you ever wanted to know about creating a diverse portfolio. He shows you how a diverse portfolio can maximize your gains while minimizing your risk, which is a very cool thing (and you thought the speculators had all the fun). Check it out.
Once you’ve figure out which funds to buy, go ahead and pull the trigger! Waiting around will get you nowhere, so get started today.
Why Index Funds Are Sexy
Let’s face it, index funds have a bit of a reputation for being boring. After all, if everything goes absolutely perfectly, your portfolio performance for an index fund will be…precisely the same as the market return, less expenses. Not quite as exciting as playing the futures market now, is it?
While it’s true that you won’t enthrall your party guests with stories of fortunes won and lost by buying and holding index funds, that’s exactly what makes them sexy deep down. To put it into a crasser analogy, fancy investment vehicles are a lot like part girls at spring break: fun for a bit, but a terrible choice for the long term. Index funds are more like that quiet girl at your school library: not as exciting at first, but very rewarding to be with in the long run.
While everyone else is out chasing the sexy investments while you settle down with your index funds, you’ll probably find that a couple years down the road, you will be in a comfortable place while everyone else is wondering what in the world they just spent the last 20 years doing. Look into it, get started now, and your financial future will be a lot happier.
