Index Fund: Road to Riches?

[Tuco]

Hello, I am Tuco, a beginner investor.

I am 22 years old and currently have $30,000 of money in the bank/checking account/mutual fund. I currently save roughly $2000 a month because of my job and lack of financial obligations. 9% of my salary goes into my 401k account (This is the max that is matched 75% by my company) I have $14,000 in student loans with an 7.5% interest rate. My car is paid off, I have no mortgage, credit card debts etc. In 2-3 years I am looking to buy a house. My goal is to get enough money for a sizable down payment on said house, at least 20%.

I have been looking towards investing my money better but am relatively clueless about what to do. I have looked at stocks, bonds, mutual funds etc, and the little I've read has pointed towards Index Funds as being a reliable way to earn money.

I understand index funds as a large mutual fund that collects all the stocks in an index of a financial market. I've been namely looking at Vanguard 500 simply because I don't know any better.

I am not planning on putting all my savings into an Index Fund, but for the purposes of maximizing both my long term wealth and the next 3 years of getting my down payment for a house it appears that an Index Fund might be valuable. I see that people report Index Funds as typically getting 11% growth per year, outperforming most mutual funds.

1. Is an Index Fund as good as I have stated?
2. Is now as good of a time to invest in an Index Fund as any?
3. Are there any other ideas for how I could invest my money for the next 3 years before I sink it into a house (If that's the route I go).

[Vinen]

Interested in this myself.

I am in more or less the same situation as Tuco (minus the fact I have living expenses! -.-;;

But I put away ~$1300 a month. I have just under 40 thousand saved right now. I can't see myself buying a home in the area I live for at least five years. Friend is purchasing his first home with the help of his parents (rich!) and three of us are moving in with him to help him cover the costs.

[Disp]

Well the market is pretty much doing nothing right now, good or bad so it's probably not a good idea to invest in an index fund. Index funds are based off the overall index of, for example the S&P500, meaning that if that overall market moves up you make money, if it moves down you lose money. An index fund is more stable than a mutual fund and less risky than a mutual fund, but you play into the risk/reward. More risk with a mutual fund = more potential gain.

If you're looking for just a couple years investment you might wanna take a look at money market accounts, which are more short term investments.

[Kindnugs]

I had looked to start throwing money in mutual funds about 4 months ago. I put them in my "investments to watch". Every single one would have lost me money. Even the S&P 500 for the past 3 months is under.

I really am clueless at the moment, but keep telling myself its all for the long haul. Since you want a very aggressive approach and return within 3 years, I say good luck!

[Gauss]

Invest in Blizzard before they announce diablo 3. Seriously though, I am somewhat interested myself since I too am in a similar position.

(P.S. Hi Heals)

[Tuco]

Originally Posted by Gauss

Invest in Blizzard before they announce diablo 3. Seriously though, I am somewhat interested myself since I too am in a similar position.

(P.S. Hi Heals)

PRX for life.

Can you invest in Blizzard? I had thought about it when WoW was coming out because I knew it would be a huge success, but I thought that because they're owned by Vivendi that you couldn't invest directly.

[chaos]

I am also interested in it, starting to read some books. I bought a couple of books by Cramer and Bogle and I'm hoping to learn some more. Right now I'm investing in some mutual funds that I chose based on their 5 year performance, managed by my bank (USAA) and of course they have lost money. But, as they say, a down market is a buying opportunity.

I am starting up an IRA soon also. I already give 7% to my 401k, I want to up that but this year I am buying nice furniture and shit, stuff I never had before. Silly I know but I want it, no point in making money if I can't have ncie things. My investment strategy is long term though, I am looking 20-30 years down the line. I plan on buying a house probably in 2009 using my VA loan so I am not concerned about a down payment.

[Kindnugs]

Originally Posted by Tuco

I thought that because they're owned by Vivendi that you couldn't invest directly.

exactly. Also as I am finding do NOT buy most of the shit that Cramer suggests. At the very least stick to his own rule that you wait 5 days after he suggests it. I love the guy, but most of his suggestions are not coming through. This is mostly due to the fucking dimwits who control this market and sell/buy on emotion rather than annual reports and performance. I mean seriously, how the fuck could Microsoft keep going down? It just makes no fucking sense. Sorry for the rant/derail.

[chaos]

Yeah I have read that Cramer's picks are actually hsitorically outperformed by the market average (straight from his wkipedia entry) which leads me to believe that your money would be better off in an index fund than with his picks.

I'm more interested right now in learning the systems rather than specific investment advice though.

[chu]

Originally Posted by Tuco

Hello, I am Tuco, a beginner investor.

I am 22 years old and currently have $30,000 of money in the bank/checking account/mutual fund. I currently save roughly $2000 a month because of my job and lack of financial obligations. 9% of my salary goes into my 401k account (This is the max that is matched 75% by my company) I have $14,000 in student loans with an 7.5% interest rate. My car is paid off, I have no mortgage, credit card debts etc. In 2-3 years I am looking to buy a house. My goal is to get enough money for a sizable down payment on said house, at least 20%.

I have been looking towards investing my money better but am relatively clueless about what to do. I have looked at stocks, bonds, mutual funds etc, and the little I've read has pointed towards Index Funds as being a reliable way to earn money.

I understand index funds as a large mutual fund that collects all the stocks in an index of a financial market. I've been namely looking at Vanguard 500 simply because I don't know any better.

I am not planning on putting all my savings into an Index Fund, but for the purposes of maximizing both my long term wealth and the next 3 years of getting my down payment for a house it appears that an Index Fund might be valuable. I see that people report Index Funds as typically getting 11% growth per year, outperforming most mutual funds.

1. Is an Index Fund as good as I have stated?
2. Is now as good of a time to invest in an Index Fund as any?
3. Are there any other ideas for how I could invest my money for the next 3 years before I sink it into a house (If that's the route I go).

3 years as far as the stock market is concerned, is SHORT-TERM. In that case, do not invest in stocks if you're going to need it in that time frame. What you should look at are some 3year GICs. Park all your money in it and then use it to buy your house. If you are adament on buying your house in less than 5-years, putting it into index funds could be risky. Market fluctuations balance themselves out and average out much higher than what GICs can deliver, but that's over the long-term.

After you've purchased your house, then yeah invest in index funds. You don't need any knowledge about the market and it provides a good return (over the long term).

I personally buy individual stocks and mutual funds for my international exposure (20%) as I don't know much about those companies and don't want to be raped by forex exchange.

[Kindnugs]

Originally Posted by chaos

I'm more interested right now in learning the systems rather than specific investment advice though.

Thats how I got started. Read all his books and tivo'd his shows. It's good stuff, his picks just suck atm and thats no fault of his really.

[Tonic]

From my limited experience working at a bank (for 8 months) what I would look into would be a high interest savings account for the money that you're just putting away. Call around to local banks and look for something called a "Passbook Savings Account".

PSA's are pretty much just like your normal savings accounts, except for a few hitches (depending on where you find it anyway). First, they have a minimum balance that you have to keep to be sure you get your interest rate. Normally the interest rate for PSA's are in tiers, so the more money you put it, the more you're getting in return (always remember that each bank has a limit to what is insured by the FDIC).

Second, there are a limited amount of withdraws you can make per period (either monthly or quarterly depending on how their rules are) and each transaction HAS to be made using a little booklet that they give you. So you have to go in the bank and do it each time.

Not sure why it's like this, normally it's just a gimmick to get you in the bank, but some places that do this give pretty good rates on the PSA's. The place I worked at (which is a fucking shit hole) offered 5.5% APY which was much better than the CD's that we offered (4.1%).

Hope this helps a little bit anyway.

[Soriak]

An advantage of index funds that hasn't yet been mentioned is the low management fee, as it's not actively managed. I pay 0.3% on my index fund compared to 2.3% for my actively managed developing markets fund.

Once you include that fee, the majority of funds fall short of their benchmark index. http://www2.standardandpoors.com/spf...VA_2007_q1.pdf

Fund Category	Comparison Index>	% of funds outperformed by index from Q1 2002 – Q1 2007
All Domestic Funds	S&P Composite 1500	61.39
Small Cap Growth Funds	S&P SmallCap 600/Citigroup Growth	87.84
International	S&P/Citigroup PMI World Ex U.S.	81.69
International Small Company	S&P/Citigroup EMI World Ex U.S.	71.88
Emerging Markets	S&P/IFCI Composite	85.33

[Kindnugs]

Thats just fucking sad. Makes me fucking cry to think fund managers get rich for under performing and stealing peoples money.

[Dabamf]

go to vegas and put it all on black