In the past, while planning out exactly how I was planning on investing, I discussed a number of different options that I was considering. In March 2007, for example, I discussed this plan, which included four different Vanguard index funds.
Well, a year later, I’ve actually begun investing in a taxable account. Not in a retirement account – in a place where I can easily withdraw it and do with it what I wish. My goal with this investment is down the road a bit, perhaps twelve years: I want to directly finance the building of the exact home my wife and I have dreamed of. This home would be out in the country with woods on both sides, but besides that it wouldn’t be too much different than our current home with the exception of having two floors instead of three and a larger master bath.
The portfolio To reach that goal, I’m putting all my money into Vanguard into a portfolio consisting of just two funds:
50% Vanguard Total Stock Market Index Fund (VTSMX)
50% Vanguard Total International Stock Index Fund (VGTSX)
That’s it – half in one, half in the other. Simple as can be, and I’m invested about as broadly as I possibly can, as the first fund basically invests in all American stocks and the second invests in most international stocks.
Now, each month I automatically deposit a specific but equal amount into each of the funds and don’t really worry about how they’re doing day to day. I just sit back and let them do their thing.
Rebalancing I have not yet rebalanced these funds, but my plan is once a year to take an extra month worth of contributions and contribute that to whichever fund has the lower balance. So, for example, if I am contributing a total of $500 a month to the funds right now, once a year I’ll take $500 and put it in whichever of the two funds has a lower balance. This serves to keep the two funds approximately equal in value to each other over the long haul.
Future plans I really can only foresee two significant changes to this plan. My target date is 2020 for fruition, so in 2010, I am considering adding a bond fund to these two funds to reduce the effects of a negative period. In 2018 or so, I’ll likely clean the entire fund out and put it all into a high-yield savings account so that it’s not at risk from any last-minute losses.
What can you do? What is the take-home lesson here?
First, getting started in investing isn’t complicated. For a long time, I was overwhelmed by the idea of actually investing my money in something other than a bank account. The world of stock investing seemed overly complex and arcane to me, so I just avoided it. That’s simply not true – in about fifteen minutes, you can set up an online account that makes investing in the stock market about as easy as signing up for a bank account.
Second, your actual investment choices don’t have to be complicated, either. I read a lot of different books on investing and personal finance and found that they basically offered the same simple advice – buy some index funds and hold them. That’s it. I just chose the two broadest ones I could find and put my cash into them.
Third, patience is really a virtue with this. There are times when I see the stock market dropping like a rock and I get a bad feeling in my stomach. But, over the long haul, this investment will rebound. Even better, when the market is down, the money I put in for that month will buy more stocks than ever before – because they’re on sale! These thoughts make it easy for me to just sit back, not worry about it, and let the money build up over time.
Finally, you can get started, too. Put $50 a week into a savings account and you’ll soon have enough to get started. I chose funds with a high minimum because I think they’re good investments, but there are many options out there with a lower minimum investment. Just put what you can into a separate savings account each week and let it build up, then drop it into some sort of investment. Then wait and watch it grow. It might buy you a car or help you buy a house in a few years.