I’ve decided to invest in index funds. Where do I start?
After reading several personal finance books, I’ve decided I want to start putting away about $600 a month into index funds. Where do I start? If I need access to the money (down on a house, for example) how long until I can access it?
You need to hook up with Fidelity, Vanguard, or an online etrade like account. You are looking for no load funds, these places don’t charge sales commissions. I like Fidelity better than anyone but Vanguard is good as well. I would recommend against the index fund though. Here is why, Lets say you have an index fund that invests in the S&P 500 index. You bought this back in June of 07, you continue to put your 600 per month in. As time goes on, it goes lower and lower and lower. As you look at the fund, you are wondering why this is happening.
Lets take the case of Bear Stearns: June-Aug 07 trades at $170-180 per share, now at $10.40 (approx.) per share. Would you personally invest in Bear Stearns, probably not. But your index fund has no choice! As long as Bear Stearns is in the S&P 500, your index fund can not sell it. That is the danger in index funds. When a 5 star stock becomes a booger, they can’t get rid of it.
I would go with no load freedom funds (target retirement date funds) to start. These automatically spread you out among the style box categories. Once you have built up 6 months of your income in this. I would branch out, try specialty funds, a little more foreign, or even individual stocks.
As for accessing the funds, as long as you go no load, you have immediate access to it, though you need to check for short term trading fees (some are as long as 30 days).
I hope this helps
You need to hook up with Fidelity, Vanguard, or an online etrade like account. You are looking for no load funds, these places don’t charge sales commissions. I like Fidelity better than anyone but Vanguard is good as well. I would recommend against the index fund though. Here is why, Lets say you have an index fund that invests in the S&P 500 index. You bought this back in June of 07, you continue to put your 600 per month in. As time goes on, it goes lower and lower and lower. As you look at the fund, you are wondering why this is happening.
Lets take the case of Bear Stearns: June-Aug 07 trades at $170-180 per share, now at $10.40 (approx.) per share. Would you personally invest in Bear Stearns, probably not. But your index fund has no choice! As long as Bear Stearns is in the S&P 500, your index fund can not sell it. That is the danger in index funds. When a 5 star stock becomes a booger, they can’t get rid of it.
I would go with no load freedom funds (target retirement date funds) to start. These automatically spread you out among the style box categories. Once you have built up 6 months of your income in this. I would branch out, try specialty funds, a little more foreign, or even individual stocks.
As for accessing the funds, as long as you go no load, you have immediate access to it, though you need to check for short term trading fees (some are as long as 30 days).
I hope this helps
References :
First poster is all over it, you definitely need to get hooked up with one of those companies, however, I disagree with the no-load fund, in my opinion, some loaded funds are very well worth it.
References :
I second the No Load aproach; however, be careful at Fidelity, they will allow you to purchase Load funds online…they get a hugh commission for doing no work…so don’t asume everything is no load through fidelity. Do your homework. BTW, if this is money for a house that you plan to buy in the next 5 years, consider a balanced portfolio that will have less risk of loss.
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