Would you put them all in the same mutual fund? I have read that it can be a good idea to put some of them in emerging markets index funds as they have higher risk, but also higher returns in the long run, if you don't plan to use the money for a long time. What do you think?
If I may step in (15 years experience in the high net-worth finance industry in NY, albeit as a Director of Compliance, but it rubs off
), it wouldn't hurt to invest some of your money in riskier mutual funds, so long as (a) you can afford to lose it and (b) you are relatively young (i.e., under, say, 45 or so).
Mutual funds are already low risk, because they bundle together percentages of ownership in a bunch of different companies (thus, if one company goes bankrupt, you don't lose your shirt). So the risk is already mitigated, but if you're talking about a mutual fund that invests in higher risk companies--like an emerging markets index fund--there is a bit higher risk due to those companies generally having a higher failure rate (for a myriad of different reasons: local laws; volatile governments; fluctuating currency; etc).
If you want to risk a portion of your money on higher risk/higher return funds, then do something like 70% in a more stable fund and 30% in the riskier funds.
beero hasn't visited this forum in months, which is too bad because he was a solid source of advice.
Agreed. I would encourage all to re-read his/her posts.
I don't know a ton about mutual funds, but everything I've read basically points me to a portfolio diversified with various indexes, and not mutual funds.
Just to clarify, mutual funds are index funds (or, rather, can be). An "index fund" is (typically) a mutual fund (or ETF) that invests in and follows certain indices, like the S&P 500 (i.e., the top 500 companies in the world).
Vanguard is widely considered to be the industry leader, but others (like Fidelity and Schwab) have and/or are catching up, particularly with ETFs, which are essentially the same things as mutual funds, only much lower expense ratios and they trade like stocks.
Mutual funds are more "liquid" (meaning they can be converted into cash quickly) than ETFs. Just like a stock, when you sell an ETF it takes three business days before you get your money. The advantage to ETFs, however, is that you can sell them at any point during the day and get the price you just saw locked in, whereas a mutual fund's price is whatever the market value is at the end of the trading day.
Iow, let's say you invested equally in an ETF Index fund and a Mutual Fund Index fund and the value of both at 10 am was up 20% but by close of trading it was down 20%. If you sold your ETF at 10 am, you'd profit mightily. But even if you sold your mutual fund at 10 am, you wouldn't get the +20%, you'd get the -20% because a mutual fund's sell value ("NAV") isn't calculated until end of day.
Here's a good enough article from
Fidelity that goes into more detail.
any actively managed mutual fund that doesn't use indexing has a really tough time beating a well built portfolio made of indexes.
Generally speaking, over time, that's correct, but "indexing" really just means following the top stocks (in the given category). A mutual fund can either be actively managed (i.e., a manager decides that today he or she is going to sell out of X) or just passively follow the S&P 500 (i.e., whatever happens in the market happens to the fund).
Ideally you also adjust the weights of your portfolio too, but that's next level investing.
And depends on many factors, but yes. The simplest thing for most investors--especially if we're talking about IRA investing (i.e., long term, "set it and forget it" investing for retirement), investing in something like the Vanguard S&P 500 Index Fund (mutual fund)
and setting your account for dividend reinvest (which is the key to compounding interest), you'll basically be set twenty/thirty years from now.
Yes, you should contribute as much as you can (and ALWAYS contribute the maximum amount to your 401K, especially if your company matches your contributions in any percentage, as that's literally "free" money), but even if you just set your initial investment for dividend reinvest and then forget about it, it will grow exponentially.
Here's a nice
mutual fund returns calculator for anyone. It allows you to punch in various scenarios to see how your investment could grow. For example, I did an initial investment of $10,000 with $1,000 added annually into a fund that gives a 10% return (with 0 taxes as I'm thinking of it in an IRA). After 20 years, (i.e., $30,000 capital) that would be worth over $125,000. Doing the same calculation with $12,000 added annually (i.e., $1,000 per month) would yield over $800,000 in 20 years.
So if that's my goal, I need to research mutual funds or ETFs that could reliably yield a 10% return over 20 years. As ETFs are newer to the game, that might be more difficult to find, but I could reasonably extrapolate a 10 year analysis.
And, yes, part of that return needs to factor in fees, so be sure you're looking at returns net of fees.
Morningstar.com is one of the best sites for all such information. And if you're looking for definitions or more information,
Investopedia.com is a great resource. As the name suggests, it's an encyclopedia for investing, so it has all the terms and strategies spelled out in layman's terms (more or less).
