jlaw, your reply really confuses me…

“Sharebuilder is NOT a good way to get into the market as a beginning investor. First, you will not be able to build a diversified portfolio with small amounts of money.”
Even if the money is put towards low-fee ETFs that track diversified indices?

“Your expenses will be relatively high.”
Exactly what I was worried about and asked about how to maximize efficiency…

“Finally, when you go to sell, keeping track of the basis will be a headache. Ditto for DRIPS.”
As a beginning investor, I have no idea what these sentences mean. :(

But then you also say…
“The critical thing that few mention is making regularly scheduled investments on a regular basis. Aggressive savings starting at an early age and continuing through your productive years offset investing errors and the impact of down markets.”

um, isn’t that *exactly* what sharebuilder does?

It’s not a very sexy or exciting strategy but it works for me. It feels less like gambling when your stocks pay out cash every month or every quarter. And the reinvested dividends means that the size of your holdings continues to grow so it’s not as big of a gamble as betting on share price alone. I try to buy companies like this when they are “on sale” and then basically plan on holding them forever as long as they are maintaining or increasing their dividends.

I don’t understand why more younger people aren’t value investors. This strategy could really pay off over 30 or 40 years.

1)I started investing in 1983 and there have been a lot of up times and a couple of bad times during that period. If you spend your entire time looking at your accounts, you’ll sell at the drops and buy at the peaks which is counterproductive.

2) Sharebuilder is NOT a good way to get into the market as a beginning investor. First, you will not be able to build a diversified portfolio with small amounts of money. Your expenses will be relatively high. Finally, when you go to sell, keeping track of the basis will be a headache. Ditto for DRIPS.

3) There are many good no-load mutual funds with low minimums and with good performance. Personally, I prefer actively managed funds as I have generally had higher returns.

4) The critical thing that few mention is making regularly scheduled investments on a regular basis. Aggressive savings starting at an early age and continuing through your productive years offset investing errors and the impact of down markets.

You could set up a spreadsheet in Excel to help you answer that question. You already have the transaction cost information: $4 per trade. Now, find out the standard deviations and expected returns of your funds (Morningstar/Yahoo/Reuters/Google) and run simulations over x years comparing various grades between lump sum and dollar cost averaging. You might try annually, biannually, quarterly, monthly, bimonthly, weekly, and daily. To get better results you should have Excel run a lot of simulations for each and average them. Plot the final results from each of these on a line or bar chart. If you do all of this right you should see a curve. Toward one end you have lost money because you invested too frequently and were ate alive in commissions. Toward the other end you lost money because you didn’t average in enough, and also because you missed out on gains while saving up your lump sum, since markets rise on average. If you don’t see a curve you need to add more frequent or less frequent options. The peak is roughly the frequency at which you ought to invest.

(This is a lot of work if you don’t know Excel well. Keep in mind what your time is worth.)

The entire personal finance community seems to believe the only single option is to buy an index fund and put a blindfold on!

Thanks,
-Nico

I’m comfortable handling this in long term situations. I won’t be retiring for 30 years at least, and so five to ten years before my target date, as funds hit peaks, I’ll move the money over into more stable, income generating funds. But in a shorter period of time, this just isn’t an option, especially not when the majority of the income will be coming from principal, not interest.

How do you recommend handling the end period of this kind of investment?

Also, a good alternative to VFINX is SPY.

I suggest BRK.B as a stock to invest in rather then the Vanguard Index, Berkshire Hathaway is a well diversified company that many have not heard about. The long term gains are steady, and the stock is very conservative. You most likely use the products of the businesses that Berkshire owns.

So what did I learn from that? I am buying like a kid in a candy store right now. I’ve branched out into other index funds and a few carefully selected stocks, but I’m not letting this opportunity pass me by again. But that being said I am much more financially stable now, so I can take the downturns and still sleep at night. And I have had 7 years to read like crazy and follow the markets. I’m not recommending anyone wake up tomorrow and bet the farm on the market, I’m just saying this is an excellent learning oppotunity. And if you are thinking of investing Roth IRA money now might not be a bad time to deposit and buy that index fund – you’ve got plenty of time to recover if it falls further, right?