Author Topic: True Beginner  (Read 3085 times)


  • 5 O'Clock Shadow
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True Beginner
« on: February 23, 2016, 02:21:11 PM »
Wow, all these "beginner" question posts sound like they are coming from someone pretty knowledgeable in this area ;-)

I am completely embarrassed as to how much I have in my savings account, but it has been sitting there ready to pay for some house work I have planned. It was supposed to happen last fall, but is now going to be happening this spring. After that is done, I would like everything above $10k to go into something which will earn me more than the 1% interest. Or do people leave less in their low interest savings? That seems kind of high...

The only investments I have are some etrade stocks and one index fund, all of which I invested almost ten years ago (sorry! I am relatively new to actively practicing MM practices), plus some money I put into lending club this month.

The bulk of my investment that year went towards a Vanguard stock index fund, which I apparently did AWFUL choosing, because it crashed not long after I bought into it, and it STILL is at -31.30%. Thanks to my Netflix stock (one of my fun purchases) earning 3,218.01%, my overall etrade account is still at 90.50%, ha ha. I thought index funds were relatively low risk (don't attack me if this is completely wrong), so I really have no clue what to do with investments to throw money into above a certain amount in savings. It really irks me thinking about how much money I've had in my savings for the last couple years, so want to have a plan to put into action once my house work is done in April (and I could even probably start putting some into that action now).

I understand about having an appropriate mix of low risk and high risk investments depending on what you need the money for and when you need it, in regards to 401ks. I understand it's similar with non-401ks, but now that I'm looking to have more than just 401k and emergency savings, I'm feeling pretty overwhelmed and lost as to what I'm supposed to do with all my savings both while I'm saving and then also once I quit my job and am "using" my investments to live.

Thanks! Let me there is further information that could be helpful...

Interest Compound

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Re: True Beginner
« Reply #1 on: February 23, 2016, 03:49:05 PM »
Not sure how much reading you're looking for, but I'd recommend sticking with Vanguard. Vanguard is like the Credit Union of investment firms. They are owned by us, the people who invest with them:

As a result, they have become the biggest investment firm in history. Seriously. They have over 3 trillion dollars in assets under management. Why haven't you heard of them? Look at the graphic above again. They operate with just enough profits to cover their costs. In other words, they aren't spending millions of dollars every quarter on fancy advertisements, they aren't buying big billboards in downtown manhattan, and they aren't paying for thousands of sales people in hundreds of offices across the country to create brand awareness. They are legally obligated to operate with our best interests in mind, which is why they are the only company I'd trust with my money.

If you want to keep things simple I'd recommend one of two options:

1. "I want Vanguard's experts to do everything for me. I'll just tell them my age and they'll put it in the appropriate Target Retirement Fund"

2. "I want Vanguard's experts to do everything for me. I'll just tell them how much risk I want, and they'll put it in the appropriate LifeStrategy Fund"

Both of these options invest solely in "index funds". This means they aren't trying to bet on what the next "hot stock" will be, they're just buying everything. Here's what the experts have to say about that:

  • A low-cost index fund is the most sensible equity investment for the great majority of investors. My mentor, Ben Graham, took this position many years ago, and everything I have seen since convinces me of its truth. ~Warren Buffet
  • Most investors would be better off in an index fund. ~Peter Lynch
  • Only about one out of every four equity funds outperforms the stock market. That's why I'm a firm believer in the power of indexing. ~Charles Schwab
  • Most investors should simply invest in index funds. ~Robert Rubin, Former Secretary of the Treasury
  • For most of us, trying to beat the market leads to disastrous results. ~Prof. Jeremy Siegel, author
  • Over the long-term the superiority of indexing is a mathematical certainty. ~Jason Zweig, senior writer for "Money"
  • Indexing virtually guarantees you superior performance. ~Bill Bernstein, author, financial adviser
  • With the market beating 91% of surviving professional stock pickers since the beginning of 1982, it looks pretty efficient to me. ~Bill Miller, portfolio manager
  • The smartest thing people can do if they want money in the equities market is buy an index fund and forget about it. ~Elliot Spitzer, NY Attorney General
  • "Of the 355 equity funds in 1970, fully 233 of those funds have gone out of business. Only 24 oupaced the market by more than 1% a year. These are terrible odds." Jack Bogle (2007)

Vanguard's Target Retirement Fund is a perfect long-term investment, because it combines the blue line and the orange line, into one package. When you're younger, it adds more of the blue line when you want more risk, and as you get older it adds more of the orange line to keep you safe from crashes:

You can throw money at it for the rest of your life, and you'll be just fine. Why would you want to choose your risk with Vanguard's LifeStrategy fund? Maybe you're saving money for a house downpayment in a 5 years, or your job situation is unstable, and don't want to take on much risk.

If you want to get more advanced, and play with tax-efficient fund placement:

The standard 3 fund portfolio is all you need. If you're looking for more informaiton, these videos bring you from beginning to end, from creating an IPS, to knowing how and where to invest.  Yes, the guy is over-the-top silly, he's clearly a nerdy guy, but he hits all the right points, and explains it very well -

A detailed view on how to invest -®_investment_philosophy®_investing_start-up_kit

The best stock market overview -

If you're looking for even more detail, here are some good books (last two are on Audible):
« Last Edit: February 23, 2016, 04:51:10 PM by Interest Compound »


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Re: True Beginner
« Reply #2 on: February 23, 2016, 04:19:31 PM »
The generic purpose of an index fund is to passively track a market to capture that market's returns for low cost - generally by buying everything that qualifies as part of that market.  This is not necessarily low risk as there is lots of different markets that can be tracked.  For instance, here is a financial sector fund:

This holds 567 different stocks and that sounds like a lot of diversification.  Citigroup (C) is a major component of this index.  It is down 90% on a ten year chart, and some of its peers are the same.  Overall, this sector still hasn't recovered from the financial crisis and lags the broader market considerably.  The S&P 500 has less companies, but it has much broader coverage of all market segments.  The fund is  meeting its desired goal, but most would categorize a portfolio that only contained VFAIX as high risk because the companies are too similar.

Generally, if you are going to index, you should be aiming for everything.  IC's post above covers that pretty well.


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Re: True Beginner
« Reply #3 on: February 23, 2016, 09:02:11 PM »
Spend a few hours (doesn't have to be all at once) reading this:

After that, you can move onto some Bogleheads stuff and various books.

But that's the best place to start, IMO, especially based on your comments about index funds and individual stocks and confusion around that stuff. 

Good luck!  :)
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Re: True Beginner
« Reply #4 on: February 24, 2016, 03:28:49 PM »
All good advice so far.  I recommend Paul Merriman's website and podcast.  Specifically for those in your situation: "Superior Diversification on a shoestring budget" and "The Ultimate Buy and Hold Strategy"  Paul teaches buy-and-hold, index investing.  When I began investing I found his podcast and articles to be very clear and actionable.


  • 5 O'Clock Shadow
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Re: True Beginner
« Reply #5 on: February 27, 2016, 11:38:10 PM »
subbing for all the great links!