Hello Cookie
Always nice to see people in their early 20s who want to live the mustchian lifestyle instead of the more common alternative (debt, consumerism, etc)
To specifically address "which funds should we invest in, that depends largely on what your Asset Allocation (AA) is. Basically, your AA is how much of your money you want in equities, bonds, real estate and cash/liquid investments. Within each of those categories there are sub-categories, like how much equities you want in large US corporations, how much in emerging foreign markets, small-cap stocks, etc. etc. There are as many different AAs as there are individaul investors, and each person needs to find the one that they are most comfortable with.
Personally, I've taken the dirt-simple approach of having a 95/5 AA (95% in equities, 5% in bonds/savings). My money is invested in Vanguard and mostly in their SP500 index fund (VFIAX). It gives me shares in the 500 largest US companies, which have substantial foreign business as well. It has the lowest fees of any fund. Another popular choice around here is the Vanguard Total Market Index (VTFAX), which is dominated by the same 500 companies but also includes the smaller US companies as well. It has done slightly better than the SP500 over the last few decades and will give you some exposure to small US companies that may become very large companies some day.
That's just my personal example. Historically stocks have beaten bonds the majority of the time (~80% of the time when you look at 10 year periods), and so most people around here have a high % of their portfolio in low-cost index funds like the VFIAX. The caveat is that markets will drop from time to time and you need to stay rational enough not to take money out when the markets drop and to keep investing. The drops can be painful when you look at your statement and find that you have ~20-30% less than you had a year ago. But If you leave it alone and keep adding to it it will recover in time (usually in 1-3 years, although sometimes it takes longer). Owning bonds will help smooth out these drops since they don't drop like stocks do, but you will likely sacrifice some long-term growth, especially if you have hold more than 20% in bonds. Because people near or at retirement are more interested in preserving their principle than making it grow, a lot of people will hold a much larger % in bonds when they are FI (financially independent) - they are willing to miss out on some growth in order to avoid loosing money in the short term. But since you are 21 and in the "accumulation phase," I wouldn't recommend this path.
Finally, this may be more information than you are ready to digest. Take your time, read a lot on the subject, and in the meantime I'd recommend the following strategy
1) participate in any 401(k)/403(b) plans your work offers, at least enough to get the full company match. This is the absolute best return you can get (free money!)
2) start and fully fund IRAs for both you and your spouse every year
3) spend less than you earn and invest the difference. Forget 10% savings goals and instead shoot to save 25%, 30% or more of your income (this includes the 401(k) and IRAs).
Do this while investing in low-cost index funds and you will be FI well before you hit 40. It really can be that simple.
Cheers
N
