Whenever I am asked for advice on investing, I recommend the broader index. I never suggest individual stocks to anyone. For the most, picking stocks is more of arrogance than of skill. Everyone is up to beating the index. But the truth is that majority of investment managers, forget individuals, fail to trump it. A simple, low cost S&P-500 is all one needs to move towards financial independence. Alas, stocks never cease to excite people. That's a behavioral problem, isn't it?
While S&P-500 is what I suggest, there are total market index funds too. Let's check out the index offerings from Vanguard. All information is taken from the Vanguard website.
The S&P-500 investment comes in 3 variants: ETF, Admiral shares, and Investor shares. All invest in the S&P-500 stocks representing 500 of the largest US companies. Consequently, they track the index returns. 10 largest holdings make up approximately 23% of the fund's total net assets. The net assets value of the fund is $459.3 b. The expense ratio is 0.04% for ETF and Admiral, and 0.14% for the Investor. Here's a quick summary of these funds.
The total market investment also comes in 3 variants: ETF, Admiral shares, and Investor shares. All invest in the CRSP US total market stocks representing the large, medium, small, and even micro-cap US companies. Consequently, they track the CRSP US total market index returns. 10 largest holdings make up approximately 19% of the fund's total net assets. The net assets value of the fund is $756.6 b. The expense ratio is 0.04% for ETF and Admiral, and 0.14% for the Investor. Here's a quick summary of these funds.
The S&P-500 investment comes in 3 variants: ETF, Admiral shares, and Investor shares. All invest in the S&P-500 stocks representing 500 of the largest US companies. Consequently, they track the index returns. 10 largest holdings make up approximately 23% of the fund's total net assets. The net assets value of the fund is $459.3 b. The expense ratio is 0.04% for ETF and Admiral, and 0.14% for the Investor. Here's a quick summary of these funds.
The total market investment also comes in 3 variants: ETF, Admiral shares, and Investor shares. All invest in the CRSP US total market stocks representing the large, medium, small, and even micro-cap US companies. Consequently, they track the CRSP US total market index returns. 10 largest holdings make up approximately 19% of the fund's total net assets. The net assets value of the fund is $756.6 b. The expense ratio is 0.04% for ETF and Admiral, and 0.14% for the Investor. Here's a quick summary of these funds.
While it really does not matter which index is chosen, my preference is S&P-500. Many prefer the total market because smaller companies have the tendency to become big and give superior returns. It is true, but, my advice is to stick to the large businesses than bet on small and micro. The S&P-500 makes up a large portion of the total market anyway.
What is imperative is to choose an index, and then stick to it for a very long time. Throw the money each month irrespective of the market levels. And this is the best part of the index investing: pe ratios or pb ratios don't matter; implied equity premiums don't matter; whether the market is overpriced or underpriced is irrelevant for the investor. As the investing horizon gets longer, the risk in expected returns gets lower. With this you will be able to beat a majority of the investment managers in the country.
What is imperative is to choose an index, and then stick to it for a very long time. Throw the money each month irrespective of the market levels. And this is the best part of the index investing: pe ratios or pb ratios don't matter; implied equity premiums don't matter; whether the market is overpriced or underpriced is irrelevant for the investor. As the investing horizon gets longer, the risk in expected returns gets lower. With this you will be able to beat a majority of the investment managers in the country.
Invest in the index, and move on with life. Do what you enjoy instead of fretting over expected returns. The index will take care of your financial needs. Isn't that cool?
Yet, there aren't many who pick this strategy or after picking it have the discipline to stick to it. That's altogether a different story.
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