I heard a lot about index fund and vanguard. Should I invest in vanguard index fund?
Before anyone can give you an informed answer to your question, it is necessary to know a little bit about your circumstances and what your investment objectives are.
For instance, if you're investing to buy a new car in about a year, the answer to your questions is NO. In such a case you should probably put your money into a CD, because with such a short time horizon you do not want to put your principle at risk.
However, if you have a long time horizon like 10 years or more and you're saving for retirement or to pay college expenses for a 6 year old child, the answer would be YES. But then your next question should be: HOW MUCH RISK SHOULD I TAKE? That depends on the length of your time horizon, and you can control your risk level by adjusting your asset allocation -- the percent you put in stock index funds and bond index funds. An aggressive allocation would be, say, 80% in stocks and 20% in bonds. Then, over the years, as your time horizon shortens, you gradually adjust you asset allocation to a more conservative level, say, eventually to 80% in bonds and 20% in stocks.
This is all explained in easy to follow terms in a new book, THE SMARTEST INVESTMENT BOOK YOU'LL EVER NEED, by Daniel R. Solin.
Vanguard is a great company if you just want index fund. Vanguard started the index fund revolution and is probably one of the best in offering index fund choices, although fidelity and others have somewhat caught up on the low fee structure. You can also go with ETF on index investing which allows you to trade intra-day.
If you want to invest in more than just index fund, you want to make sure you stay with great fund managers. Most of the fund managers are not that good and not worth the fee they charge, but a few of them are just excellent and you should find a few and stick with them. Check out Fund Mojo . It has a report on the best active fund managers based on historical performance, volatility, fee, manager tenure etc.
With ETFs -- exchange-traded funds -- you have the same advantages as traditional index mutual funds, plus you can trade them just like stocks, which gives you flexibility. But there is a downside: with ETFs, you have to pay commissions to a broker with each transation. That goes against the grain because one of your main objectives in your investment strategy should be to keep costs at an absolute minimum. And traditional index mutual funds do that for you.
There is, however, one instance where it might make sense to go with ETFs. Suppose you have followed the index mutual fund idea with most of your nest egg, but you still want to put a small percentage in something else, something that's not a broadly based fund. For example, gold mining stocks, as a hedge against inflation; or an ETF that invests in a particular industry like energy stocks, or pharmaceuticals, or a fund of Real Estate Investment Trusts. There are good reasons for putting some money into any one or a combination of these, as long as it is just a small percent of your total. You can still invest in these things using traditional managed mutual funds, and some of them are pretty good. But these specialized funds tend to be a bit more volatile that the broadly based index funds that make up the bulk of your nest egg. For that reason, you might want to use the ETF route for these holdings so you can get in and out more quickly than you can with traditional mutual funds.
I second Vanguard being a very good company.
I have my primary 401K and some supplemental personal investments with them and have been very happy with the returns over the years.
Food for thought regarding Vanguard.
Vanguard Managers Invested in Illegal Web Gambling, Suit Says
By Andrew Harris
Aug. 29 (Bloomberg) -- Executives at The Vanguard Group, the second-biggest U.S. manager of stock and bond mutual funds, illegally invested client assets in companies running Internet gambling businesses banned in the U.S., according to a lawsuit.
In a complaint filed today in U.S. District Court in New York, investors in two different Vanguard-managed funds claim the firm's chief investment officer, George Sauter, portfolio manager Duane Kelly and eight trustees violated U.S. racketeering laws and breached their fiduciary duties to investors by acquiring stock in the Web-based businesses.
``Defendants caused the funds to become owners of illegal gambling businesses,'' according to the complaint. The plaintiffs seek class-action, or group, status on behalf of all similarly situated investors, plus unspecified compensatory and punitive damages.
Vanguard, based in Valley Forge, Pennsylvania, has more than $1.25 trillion in assets. The company itself is only a nominal defendant in the suit that plaintiff investors Deanna McBrearty and Marilyn Hartsel styled as an action brought on the company's behalf.
Rebecca Cohen, a Vanguard spokeswoman, said the company hasn't been served with the complaint and declined to comment.
The case is McBrearty v. The Vanguard Group, 08cv7650, U.S. District Court, Southern District of New York (Manhattan).
To contact the reporter on this story: Andrew Harris at the federal court in Chicago at firstname.lastname@example.org.
A link that might be useful:
This suit sounds odd to me. Look at the link cited below, and you will see that at least one of the funds named is the Vanguard European Index Fund.
The holdings of that fund, in turn, are dictated by the Morgan Stanley Europe Index, which Vanguard does not control.
So if there is a suit claiming that it's illegal to follow that index, shouldn't Morgan Stanley be the defendant?
Personally, I wouldn't be surprised to find that this is one of those nuisance lawsuits that is constantly plaguing every large company.
Here is a link that might be useful: More information
I am really surprised that Vanguard people would be involved in something like illegal gambling enterprises. It is so out of keeping with the company's investment philosophy. I guess greed has no bounds. Let's see how this plays out.
For reference, the above mentioned case was dismissed
Here is a link that might be useful: http://www.delawarebusinesslitigation.com/uploads/file/hartsel.pdf
scivi92, thanks for posting a follow-up. That's always helpful!