Investing 101

[renodakota]

Hi, everyone! This is my first post here. I'm completely new to investing and could use some very basic advice.

My basic situation: Other than my mortgage (which I have under control), I have no debt. I'm already maxing out my 401k contributions. So my next step is taking a significant portion of the $55,000 I have just sitting in my checking account and investing it somewhere. I know MMM has recommended the VTSMX fund - is that my best starting point? Again, I really know nothing about investing, so I'd like to keep things as simple and hands-off as possible. Any recommendations would be very much appreciated.

Thanks!

[matchewed]

http://jlcollinsnh.com/stock-series/

[Kriegsspiel]

Read Bernstein's books, Harry Browne's 17 rules, Wade Pfau's blog, and the Bogleheads site.

Bigger Pockets for real estate investing.

[NWOutlier]

The jlcollins series is excellent, I personally used his and MMM's advice, I chose VTSAX as my total stock index and I'm up almost 9000.00 since Sept 2013.  Please note; once I had my 401k fully funded, a spousal IRA and a ROTH IRA.. I moved to a taxable (tax efficient) account (also is funded by VTSAX) - I don't have any asset allocation implemented with my Vangaurd stuff because I'm allocated well in my 401k, so I'm heavy stock outside of my tax benefited accounts.  Lastly, I keep money in cash for emergencies....

Read through all of the jlcollins series, it's worth it.



Here are a couple of my favorites to help narrow it down:
http://jlcollinsnh.com/2012/05/09/stocks-part-v-keeping-it-simple-considerations-and-tools/

http://jlcollinsnh.com/2012/05/12/stocks-part-vi-portfolio-ideas-to-build-and-keep-your-wealth/

Best Regards,

Steve

[renodakota]

Thanks, folks. I'll do some reading this weekend.

[Cwadda]

Yeah, it's one thing to take advice from some random person, but it's another thing to get advice and then educate yourself about financing. It goes such a long way. When you know why you are investing in a certain thing, then you will be very comfortable.

Reading those links is recommended.

[NWOutlier]

Cwadda says it best!

I have to admit, consuming the blogs (jlcollins and MMM along with a few others) does give excellent guidance.  Once you have that guidance, it's time to dig in and see how what you've learned applies to your situation, modify it for your goals, learn, learn, learn, read, re-read and re-read. 

I've spent a good amount of time prior to Sept 2013 (last year) just reading, cross referencing, then executing my plan in Sept - modifying it as I learned more...  Between Sept 2013 and Feb 2014 I believe I've nailed down not only the investments and the costs - I created a money flow system that works to ensure I always continue to invest even if I don't have a job.

I defined what works for me, Cwadda highlights the key to actually succeeding at what will work for you long term...

Thanks for adding Cwadda! 

Best Regards,

Steve

[ajaxlupis]

In general you can't go wrong with VTSMX but you may also want to consider an international fund like VGTSX (Vanguard's Total International Index).

That said, the other dimension you'll need to think about is the type of fund.  If your income isn't over $125k (single person) or $183k (married) then you should also consider a Roth IRA.  If your cash flow allows you to set aside some of that $55k for the long haul, using a Roth IRA will definitely help you from a tax perspective.  That will only help you with $5500 per year (but if you act quickly, you can contribute both for 2013 and 2014),  but that will still allow you to optimize $11,000.

The other $39,000 you can put into a Vanguard stock fund like you suggested.

[soccerluvof4]

Like most read the Collins series. Also you can call vanguard and or go to there website once you pick funds to figure out whats best for your AA. For me in my index funds i use 4. But there are alot of variables in making those decisions.

[hodedofome]

I guess I'll be the one person that doesn't recommend a 100% allocation to VTSMX...

What if the US ends up like Japan and goes into a terminal decline? Their stock market has been down for almost 25 years and there's no law out there that says it has to go up. Just the same, there's no law that says the US stock market always has to go up. Just because most Americans need it to go up to fund their retirement, doesn't mean the market owes them anything. Do you know how many country's stock markets have gone to zero the past few hundred years? Do you know that the US market was down for 25 years between 1929 and 1954? Would you have held through that? Would you be able to retire and make a negative return on your savings for 25 years?

Sure, it's gone up compared to the past 150 years. It was also a pee-on country that turned into the world's superpower. Nobody could have predicted that. A few things that you have to consider are that 1) The future is unpredictable and 2) Anything can happen. If you can't predict the future and anything can happen, how would you invest? Diversification. Worldwide stocks, not just the US. Read up on 'Home Country Bias.' Bonds and Real Estate as well.

As others have said, read Berstein, Browne, Bogle. I'll throw in Mebane Faber into the mix as well. You have to educate yourself and not rely on someone else to tell you what to do. Nobody will watch over your money like you will.

[ZMonet]

I'm not necessarily advocating 100% VTSMX and I'm also not saying that the US Empire will live forever, however, investing in US companies does give you a fair amount of exposure to other countries.  Look at the S&P and see how many of those companies are mulit-national...quite a few.

Can't trumpet enough reading JLCollins stock series.  It is a quick/entertaining read and when you're done, you'll know more than at least 90% of the people out there about what you need to do with your investments.