Looking to start investing

If you want to invest outside of your 401k, you’ll need to set up a brokerage account. It’s just like setting up a bank account. You can go to Vanguard, Fidelity, or Schwab and open an account up on their websites. They have similar capabilities – Vanguard is geared towards simple buy and hold investing, and Schwab and Fidelity offer more powerful tools for buying and selling stuff. You can literally just transfer money from your bank account with them and start investing.

In my opinion, most people should just be investing in index funds (Myself included). There are a ton of smart people out there trying to beat the market, and even dedicated expert investors tend to lose to the market on average over a long period of time. A lot of people speculate – and of them, some of them win big and some of them lose – on average, the speculators will do worse, but the “I won” stories can be very influential.

You should understand that if you’re taking a sensible approach to investing, you’re not really trying to beat the market but match it. If the stock market goes up, your investments are worth more. When it goes down, they’re worth less. Because you’re getting market returns investing this way, there’s no need to optimize anything.

It doesn’t matter if you’re investing a small or large amount of money. The only mistake is not investing in the long term because you don’t think you have enough.

You should have reasonable expectations about this – the stock market – over a long time – is sort of a magical money machine, but you could start investing today and then the stock market could dive and take years to recover from. It happened in 2000, and in 2008.

I will recommend that you look at investing in no more than three funds, preferably 1 or 2.

You could look at investing in the world total market or US total market – these are diverse investments where there is absolutely no need to add anything else to them. You could also look at splitting them up a little bit if you want different ratios. I’m using vanguard here as an example as I’m most familiar with them, but the other brokerages have largely similar funds.

VOO – This is the S&P 500. It is “large cap” and is US only.

VTI – This is the US total market. About 85-90% of the stock is identical to VOO, but it has smaller companies too. Performance between these will be very similar since there’s a lot of overlap.

VXUS – This is the world total market, excluding the US.

VT – This is the world total market.

If you want to have some international exposure but not as much as VT, you could use VTI and VXUS to approximate something more to your preferences. Some people also add more small cap companies to their investments because the market is very top heavy. Vanguard has “mid cap” and “small cap” index funds that would pair with VOO, or you could go elsewhere (AVUV is a popular small cap ETF). I don’t think that there’s a lot of value in fiddling with it when VTI covers everything domestic.

Some viable portfolios using this basic concept could be:

100% VT

100% VTI (This is US only)

80% VTI + 20% VXUS (Having some international but less than market weight)

60% VOO + 30% VXUS + 10% AVUV (US large cap, international, and small cap value).

Last, I’ll reiterate that I’m just speaking of mostly Vanguard funds because I use them. The other brokers are fine too. For example, SCHB is largely comparable to VTI, and Fidelity’s FSKAX is a similar mutual fund to VTI / VTSAX)

On mututal funds versus ETFs – Mutual funds trade at the end of the day. ETFs trade like stocks. The expense ratios might be a tiny bit different but it’s in irrelevant territory. Practically speaking the difference isn’t very important.