by There are funds that do the work for you. Over our time we have found there tend to be three primary types of mindsets when it comes to investing:
- Want to know every detail, loves learning about finance, gets excited when a new fund is opened up even if they aren’t investing in it, and loves the process of learning
- Wants to be in a better place financially, understands it’s a process, isn’t that interested in all of the details but loves the end results
- Doesn’t care at all and figures it will all work out
Individuals in 1 or 2 will enjoy today. If you are in group 3 right now we are glad you found this information and we invite you to come along with us. For those in group 3 we hope to get you to join group 1 or 2!
All in One Funds…Taking the Work Out of Building a Portfolio
All in one funds have been around for a little while. They build on the concept that a portfolio should have a mix of asset types.
For example having 100% stocks leaves an investor with a higher level of risk compared to one that has a mix of stocks and bonds. Also an investor with 100% bonds has a high level of risk to inflation or the companies going out of business that issued the bonds.
Why do you care?
You care because you want to maximize your return while minimizing your downside. Downside = losing money.
Selecting a Complete Fund that Fits Your Goals
These types of mutual funds are offered by a variety of companies. As usual when you are selecting a mutual fund fees matter! We want you to watch out for the fees and make sure to minimize those. That is after all what you are paying the company to work on your behalf.
Today we will be going over a few items from our friends over at Vanguard. While we talk about Vanguard quite a bit we encourage you to find the company that works for you, your investment goals, and who you are comfortable with.
Let’s look at a few examples from Vanguard below. Also of note the average expense ratio for these funds is .13% vs .78% for the industry. I know we sound like a broken record but fees, fees, fees! They matter and we want you to maximize your return not those of the company you are buying from.
Which one of these LifeStrategy funds is right for you?
In order to answer that question we want you to ask yourself a few questions:
- How comfortable are you with risk?
- If you logged into your account and saw it down 10% what would your initial gut reaction be?
- How long can you deal without the money you are going to invest?
- Are you closer to a large event in your life? (retirement, buying a house, wedding)
The longer your time horizon is the greater your return you will get with a higher percentage in stocks.
“I thought you two were always saying I should just put everything in an S&P 500 Index Fund”
What we recommend is having your foundation in an Index Fund. We believe this is the core for investors. You will get your fair share of the market returns with less risk.
As you grow as an investor eventually you will want to move money to other types of funds that allow for less volatility. This is where bonds and other types of funds come in to play.
Having your S&P 500 or Total Market Index Fund is the core of your portfolio and you can build from there. These life strategy funds take some of the work out of it and build in a mix of stocks and bonds.
Should you go out and buy one of these types of funds?
The answer is it depends. It depends on how comfortable you are with building a portfolio. These portfolios come pretty close to a “set it and forget it”. There are many options to dig into and if you don’t want to monitor things closely (not a bad thing) then these may be right for you!
As always if you have questions or a situation you want to discuss just ask and we will be happy to help.
Twins Rules for Financial Success
As with all of our content here we want to encourage you to follow three core rules :
- Have an Emergency Fund/Squirrel Funds
- Invest for the Long Term
- Invest Automatically & Consistently
