That article spoke about the why.
Today, I’ll share about the how.
Of the many advantages of broad-based index funds, two stand out:
- You’re buying the entire market, so you win with the winners & lose with the losers & make the average market return (which is better than most fund advisors can do for you over time)
- The expense ratios can be very low because it’s not actively managed (and thus you’re not having to pay a significant amount for salaries, research, etc)
For long-term investments, I like to buy broad-based index funds, rather than sector-focused index funds.
Broad-based index funds are funds that buy most of the market.
Sector-based index funds are funds that buy a portion of the market.
The best broad-based index funds are the ones with the lowest fees.
Vanguard & Fidelity are two brokerages known for having very low cost index funds.
I have all of our long-term index fund investments in these two brokerages.
At Vanguard, I like these funds (there is a $3,000 minimum investment):
- VTSAX - Total Stock Market Index Fund Admiral Shares (expense ratio 0.04%)
- VFIAX - S&P 500 Index Fund Admiral Shares (expense ratio 0.04%)
At Fidelity, I like these funds (there is no minimum investment):
- FZROX - Fidelity ZERO Total Market Index Fund (expense ratio 0%)
- FXAIX - Fidelity 500 Index Fund (expense ratio 0.015%)
As you can tell, these funds are extremely low cost. Compare the expense ratio to other funds in your portfolio and you’ll probably be shocked.
You can invest in these funds by opening an IRA (retirement) or brokerage (taxable) account at Vanguard or Fidelity and then buying these funds.
You can put in a large amount or set it up to automatically put in a certain amount each month.
Remember, with index funds, you’re investing with a long-term horizon. If you need this money soon, you wouldn’t put it here.
I’d only suggest this investment for a 10+ year time frame.
This is the exact strategy Warren Buffett has suggested to his wife for investing when he’s gone.
I’d encourage you to look at your investment accounts, see if they’re in index funds, and compare the expense ratios listed above to what you’re paying.
You may find that you could save hundreds of thousands of dollars over the long-term by investing in lower-cost funds & make hundreds of thousands more by not having active fund managers choose stocks for you.
