HapiMoney

Information Overload – What are some good index funds?

Written by Alex

: Image by Getty Images via Daylife

How do you decide what stocks to purchase? Which index funds are the best? The problem with finance isn’t the lack of information but rather that there is too much of it. The paradox of choice overwhelms us and in the end, we do nothing, and stick with the status quo.

Information is everywhere, but education is limited, and we find ourselves constantly saying “I’ll do this later”.

I’m going to recommend two index funds for you and then explain why I like them:

For your stocks/equities I recommend VTSMX: This is the Vanguard Total Market Index. It is comprised of over 3,000 individual stock holdings and aims to track the returns of the US stock market as a whole. It’s got low annual expenses (.18% at the time of writing) and is run by the folks over at Vanguard whom are highly respected individuals.
For your fixed income assets I recommend VBMFX: This is the Vanguard Total Bond Market Index. Like it’s sibling VTSMX, this fixed income portfolio is comprised of 3,000 different bond holdings. The goal, per usual, is to track the returns of the US bond market as a whole.

Great, so what do you do with this? First, research these index funds to make sure you are comfortable with buying them. Next, decide how much to put in – you’ll need a minimum of $3k per fund. I keep promising to tell you how to divide your assets between equities and fixed income (and why) and I keep pushing it off, but I promise I will eventually get around to it. For simplicity’s sake, the most common splits are 60% Equities/ 40% Bonds or 50% Equities / 50% Bonds. The younger and more risk seeking you are, the more equities you should own.

Lastly, REINVEST ALL DIVIDENDS. These things are supposed to compound over time, but how are they going to do that if you keep taking away the interest?

Disclaimer: I do not own either Vanguard Fund. Instead, I split my assets between DGEIX (a total equity portfolio) and DFGFX (a total bond portfolio). The reason I recommend neither here is that they are run by the DFA and are not available to the general public.