Two types of people.
I wish I was like Hank. But seriously, I am quite aware of the brilliance of such investments, yet have no clue on how to even start as a twenty-something…
I think I can help with that.
What Hank said above could easily be accomplished with US stock, international stock, and bonds. And you can get all of the above by only purchasing three mutual funds. This strategy is called the “three-fund portfolio” and is very simple to do, easy to maintain, and widely diversified. You can google “three-fund portfolio” to read hundreds of pages and forum topics on it, but basically…
A three-fund portfolio buys a “domestic stock total market” index fund, an “international stock total market index fund”, and a “bond total market index fund”. Examples of these types of funds:
- Vanguard Total Stock Market Index Fund (VTSMX)
- Vanguard Total International Stock Index Fund (VGTSX)
- Vanguard Total Bond Market Fund (VBMFX)
If you were to buy those three mutual funds, at say, 50% US, 30% International, 20% Bond - or whatever asset allocation is right for your risk tolerance… the rule of thumb is the younger you are, the more stocks you buy, the older you are, the more bonds you buy - you would have a portfolio that would be very diversified and should grow at an average annual return of about 7-8%.
You can do this by opening a taxable brokerage account online at any online brokerage, I personally use E*Trade and Vanguard, but you could go with many other services. You transfer money in just as if it were a checking account, and then buy the funds using their tickers (like VTSMX above).
You can also invest in these same funds within your retirement account at work (usually - some employers restrict which funds you can invest in, but should have similar mutual funds to the Vanguard funds listed above). If you have a retirement account at work, you should max that out before opening a taxable brokerage account because a.) most employers offer some kind of match, and b.) money in most retirement accounts is pre-tax, and also grows tax-free until you withdraw it in retirement. Taxable brokerage account growth/dividends are taxed annually alongside your income.
I chose the Vanguard funds as examples because they have some of the lowest expense ratios in the world. Expense ratios are important, these are the fee the mutual fund charges you for managing hundreds of individual stocks within each fund. Most will charge you around 1% per year, meaning if you invested $100,000 the mutual fund would charge you $1,000 per year for maintenance - those fees will eat into your returns/growth. Vanguard’s funds, on the other hand, have an expense ratio of only 0.17%, meaning if you invested $100,000 Vanguard would only charge you $170 per year, so you save $830 in fees every year.
As you can see, those expense ratios can add up, so make sure you know what they are before you buy any mutual fund. And no, you couldn’t save on fees by buying all those individual stocks yourself because you will pay anywhere from $7.50 to $12 per group of stocks that you buy individually and Vanguard’s three funds above hold hundreds of stocks (to maintain diversification).
Hope that helps! My Ask is open if you have any other questions.
Disclaimer: I am not certified to give financial advice and you should always do your own research and fully understand any investment product before investing. But everyone needs a place to start, and the above is a very good place to start. =)