Author Topic: Best Index Fund?  (Read 9729 times)

gebraset

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Best Index Fund?
« on: September 24, 2013, 07:28:32 AM »
I currently have some money invested in USAA within one of their funds, but after looking at index funds, I would like to put my money there instead. So, from the looks of it, low fees are something that I am after. In general, USAA fees for their index funds are not horrible, but Vanguard of course offers lower fees. Due to this, I am looking at a few different funds from them but am having a hard time deciding on which funds to invest in. Can you all please provide some insight?

Current funds I am considering, but am of course open to other suggestions as I'm quite amateur in this area.

VFINX
VFIAX
VBINX
VTSMX

From what I am tell, VTSMX would be the best choice due to their returns and low 0.17% expense ratio. The only expense ratio that beats it is VFIAX, which has a low percentage return over all periods of time. VFINX ties it in expense ratio, but again, does not have as high of performance as VTSMX.

matchewed

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Re: Best Index Fund?
« Reply #1 on: September 24, 2013, 07:43:59 AM »
The difference between VFIAX and VFINX is the class they are in. This class difference is based on quantity invested in them. Once you have 10k you can convert VFINX shares into VFIAX shares. VFIAX also has a lower expense ratio than VFINX. Most of their mutual funds have a similar set up with class differences, for instance VTSMX has VTSAX as an admiral class with lower expense ratio and higher minimum.

What you invest in will be dictated by your goals and risk tolerance. The 500 index will be highest risk as it is indexed against a small section of the market. The total market fund will be a medium risk for what you've posted as it has the highest diversity within a particular asset class (equities). And VBINX is the most conservative (least risk) as it is a fund which seeks to balance a 60/40 stock/bond ratio. Lower risk means a smoother (less volatility) but potentially lower return. Higher risk means a rougher (higher volatility) but potentially higher return. It is a YMMV situation. I know what I've picked for myself but that doesn't mean it's right for you.

GreenGuava

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Re: Best Index Fund?
« Reply #2 on: September 24, 2013, 09:36:00 AM »
There's no 'best' index fund - it would be odd to compare VTIAX and VTSAX, for example, because they cover different asset classes.

What asset class do you want to cover?  If it's domestic stocks, I suggest the total stock market index (VTSAX - or the Investor class shares if you are putting less in).  If you'd rather stick to larger companies, the S&P 500 is popular (there's also a large cap index).

Do not look at past performance - it has zero predictive ability.  You can use it to determine if a fund successfully follows its index, but that's about it.  The total market index will outperform the S&P 500 when small caps do better, and will under-perform it when small caps do worse.  They cover (slightly) different asset classes, so looking at how one did recently won't help you find the 'best' one.

By the way, you might also want to consider putting some of your investment into a bond fund - if this is a tax-advantaged account, I suggest the total bond market index.

kyleaaa

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Re: Best Index Fund?
« Reply #3 on: September 25, 2013, 11:24:34 AM »
Why are you considering these particular funds and not others? What criteria are you using? We could just tell you what to invest in, but unless you understand enough to pick the right funds yourself, we'd be doing you a disservice. That never turns out well.

gebraset

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Re: Best Index Fund?
« Reply #4 on: September 26, 2013, 11:09:11 AM »
I'm looking for something that will provide me with some passive income. The money that would be invested would be money that is already invested within the market, or extra money made from upcoming promotions that are not currently accounted for. In the end, I'd like to stick to domestic, though I suppose it's not a high concern on my list.

Like I said, I'm really looking to make some passive income from the market increasing. Granted, I realize that past performance does not dictate future performance, but I also realize that the DOW and S&P500 continues to become worth more and more in the long term. I would like to get an investment started with an index fund that does not follow simply the S&P500, but a wider range of stocks.

Also, I see that VTSAX is recommended. This seems like to be an admiral version of VTSMX, no? Or is there more of a difference?

Additionally, I was looking at USMIX before lookling into Vangaurd. It has a higher expense ratio, but looking at the data, has earned more than the expense ratio would be compared ot the Vangaurd fund. In terms of this data, which I know does not correlate to future expectations, would it not be smarter to go with something like USMIX?

So many options!
« Last Edit: September 26, 2013, 11:22:20 AM by gebraset »

matchewed

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Re: Best Index Fund?
« Reply #5 on: September 26, 2013, 11:39:00 AM »
I'm looking for something that will provide me with some passive income. The money that would be invested would be money that is already invested within the market, or extra money made from upcoming promotions that are not currently accounted for. In the end, I'd like to stick to domestic, though I suppose it's not a high concern on my list.

Like I said, I'm really looking to make some passive income from the market increasing. Granted, I realize that past performance does not dictate future performance, but I also realize that the DOW and S&P500 continues to become worth more and more in the long term. I would like to get an investment started with an index fund that does not follow simply the S&P500, but a wider range of stocks.

Also, I see that VTSAX is recommended. This seems like to be an admiral version of VTSMX, no? Or is there more of a difference?

Additionally, I was looking at USMIX before lookling into Vangaurd. It has a higher expense ratio, but looking at the data, has earned more than the expense ratio would be compared ot the Vangaurd fund. In terms of this data, which I know does not correlate to future expectations, would it not be smarter to go with something like USMIX?

So many options!

When do you expect this passive income to kick in? How much do you want this passive income to be?

So don't do the S&P 500 Index.

Yes it is an admiral version of VTSMX, see my original reply to you.

If you can't guarantee that is will always perform better then why are you assuming that it is a smarter choice? What you can control is fees. All else being equal the fund with the lower fees will be better.

Also do you know what USMIX consists of? Do yo know why it may or may not be a superior choice?

Please don't take offense to this but you seem to need some learning on investing. I'm a fairly gung-ho fan of index funds but you need to know why you're investing in them. And you need to have a defined plan that these funds support. Maybe it's because of the vagueness of your posts but I get a sense that you don't have an investment plan or policy. Look up an investment policy statement. It truly outlines the why you are investing so that you start considering what supports that.

gebraset

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Re: Best Index Fund?
« Reply #6 on: September 27, 2013, 06:19:59 AM »
When do you expect this passive income to kick in? How much do you want this passive income to be?

So don't do the S&P 500 Index.

Yes it is an admiral version of VTSMX, see my original reply to you.

If you can't guarantee that is will always perform better then why are you assuming that it is a smarter choice? What you can control is fees. All else being equal the fund with the lower fees will be better.

Also do you know what USMIX consists of? Do yo know why it may or may not be a superior choice?

Please don't take offense to this but you seem to need some learning on investing. I'm a fairly gung-ho fan of index funds but you need to know why you're investing in them. And you need to have a defined plan that these funds support. Maybe it's because of the vagueness of your posts but I get a sense that you don't have an investment plan or policy. Look up an investment policy statement. It truly outlines the why you are investing so that you start considering what supports that.

Believe me, no offense taken. You are correct, I do need some learning in terms of investments as I am pretty new to the whole scene.

In terms of passive income, I am looking for long term growth. I'm not looking to invest some money and then in two years attempt to make a profit. I'm looking for something that will help me increase my net worth, enabling me long term growth as in ten to twenty years, with automatic investments going into the account in the mean time.

You are correct in term of the two funds I brought up. You cannot foresee future performance, and going with something with a lower expense ratio is going to be the best bet. Especially is the fund fails to earn value or provides a negative return within a year. So, good call on that, as it was something I was not thinking of too in depth.

As far as I know, the USMIX contains large cap style funds which consist primarily of large corporations in the DOW, such as GM, Johnson & Johnson, etc. I am not sure why it would be a better choice than VTSMX. All I can tell from doing research on both is the holdings that they have are different, in terms of the type of sector they hold, as well as their expense ratio.

I do not have an investment plan, something that it seems that I need. I will go ahead and do further research on something like this. To put it simply, I'm looking for growth financially with money that is not currently needed for living expenses or expenses that should arise in the near future. We have an emergency fund and are living below our means for sure, so the extra money each month I am looking to grow more than a standard savings account or CD would provide.

The Financial Lexicon

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Re: Best Index Fund?
« Reply #7 on: September 27, 2013, 03:25:05 PM »
Is there a particular reason you are focusing on mutual funds instead of ETFs?  I'm just curious because as the years have gone on, I've stopped investing my index-fund money in mutual funds and instead shifted to ETFs.  I'd be curious to hear anyone else's opinions as well on why they stick with mutual funds over ETFs.

Regards,

The Financial Lexicon

kyleaaa

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Re: Best Index Fund?
« Reply #8 on: September 27, 2013, 03:40:51 PM »
Is there a particular reason you are focusing on mutual funds instead of ETFs?  I'm just curious because as the years have gone on, I've stopped investing my index-fund money in mutual funds and instead shifted to ETFs.  I'd be curious to hear anyone else's opinions as well on why they stick with mutual funds over ETFs.

Regards,

The Financial Lexicon

It's more that ETFs just don't offer any advantages over mutual funds large enough to be worth switching.

The Financial Lexicon

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Re: Best Index Fund?
« Reply #9 on: September 27, 2013, 03:54:27 PM »
I can certainly understand not wanting to switch an existing investment. But for new investments, let me at least mention these benefits of ETFs (not all may apply to every investor)

1. No minimum investments
2. Can trade for free at many brokerages (so therefore no disadvantage relative to mutual funds)
3. No purchase or redemption fees beyond the commission (which now is free for many investors)
4. When the time comes to make withdrawals, you get the price you see at the time of redemption, rather than waiting until the end of the day and hoping the price is similar (during volatile market times, you could put in a redemption order for a mutual fund one morning and realize a sale price several percent lower than you would have gotten in the ETF).
5. Investors who, from time to time, like to purchase insurance on their portfolios can do so with ETFs using put options.  The same cannot be accomplished with mutual funds.

Thanks for your response.

Regards,

The Financial Lexicon
Author of Income Investing Insider
http://get.incomeinvestinginsider.com/

GreenGuava

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Re: Best Index Fund?
« Reply #10 on: September 28, 2013, 10:51:48 AM »
Can't speak for the others, but none of these apply to me.  I'm also in the boat of being in mutual funds with no intent to switch to ETFs.

1. No minimum investments

I already have all the distinct funds I want, so the minimum investment doesn't affect me.  The only minimum that affects me is the minimum additional investment, which I'm rarely anywhere near.

2. Can trade for free at many brokerages (so therefore no disadvantage relative to mutual funds)

True, but my mutual funds don't have a trading fee either.  This one is a push.

3. No purchase or redemption fees beyond the commission (which now is free for many investors)

This is also a push, as it also applies to my mutual funds.


4. When the time comes to make withdrawals, you get the price you see at the time of redemption, rather than waiting until the end of the day and hoping the price is similar (during volatile market times, you could put in a redemption order for a mutual fund one morning and realize a sale price several percent lower than you would have gotten in the ETF).

Unlikely to be worth worrying about.  I also could get a higher value than an equivalent ETF, so it's a push.  And when I sell, it's because I need to take a particular dollar amount out, and is unrelated to market conditions.


5. Investors who, from time to time, like to purchase insurance on their portfolios can do so with ETFs using put options.  The same cannot be accomplished with mutual funds.

No interest in doing so, nor would I suggest this course of action.

I'm not saying ETFs are the wrong choice - particularly due to the smaller minimums when people are balancing across accounts.  But I am saying that I don't see a need to do so as an established investor. 

But then again, someone who needs them for that is at risk at paying higher than NAV for their purchase.  With mutual funds, I guarantee that I'm always paying exactly the NAV on purchase.  I also can put any dollar amount in - there's no requirement that the number of shares purchased is an integer.