Your Money_ The Missing Manual - J. D. Roth [136]
All-in-one funds
If you like the idea of investing in just one fund but you don't want its asset allocation to change over time, you have a handful of other single-fund options, including:
Vanguard STAR Fund (VGSTX), a collection of 11 other Vanguard mutual funds. The STAR fund is 45% U.S. stocks, 15% foreign stocks, 35% bonds, and 5% cash. (Investing in cash means putting money into things like money market accounts and CDs, which you learned about in Chapter 7.) This is a great fund to start with because you can invest as little as $1,000 into it (some funds have much higher initial investments).
Fidelity Four-in-One Index Fund (FFNOX), a collection of four other Fidelity mutual funds. FFNOX is 60% U.S. stocks, 25% international stocks, and 15% bonds.
The bulk of my 401(k) (Funding Your Future with a 401(k)) is in FFNOX because I find it fits my current needs perfectly. I may create a lazy portfolio of index funds in the future, but this fund is just right for my investment goals at the moment.
Getting Started with Systematic Investing
Now that you've picked an asset allocation—whether with a lazy portfolio or some other option—it's time to put your plan into action. While you could make regular investments whenever you had the spare cash, you'll have much greater success if you set up a systematic investing plan.
With systematic investing (also called dollar-cost averaging), you regularly contribute to your mutual funds by, say, putting $100, $250, or $500 into your investment account every month. When prices are high, your money buys fewer shares (since each one costs more); but when prices are low, your money buys more. Your constant contributions and the long-term growth of the market help you build wealth over the long run.
Discount brokers
One way to get started with systematic investing is to use a discount broker like ETrade.com, TradeKing.com, or Scottrade.com. Discount brokers are companies that help you buy and sell securities on the cheap. They appeal to a lot of people because it doesn't cost much to work with one. They charge lower fees than traditional brokers because all they do is buy and sell securities; they generally don't offer investment advice.
This type of broker is a good option if you want to buy stocks or ETFs (see Index funds) instead of mutual funds. They're also a fine choice if you want to get started now and can't afford the minimum investment at one of the big mutual fund companies.
Discount brokers offer a wide range of investment options, but they have one huge drawback: They charge lots of fees. Since it's best to keep fees as low as possible, look at other options first.
Tip
If you're considering a discount broker, check out Smart Money magazine's annual broker survey: http://tinyurl.com/SM-brokers. The Digerati Life has a summary of the survey's results here: http://tinyurl.com/DL-brokers.
Employer-sponsored plans
If you plan to do all your investing through your employer's retirement plan, it's easy to get started:
Contact HR to have retirement contributions automatically taken out of your paycheck. As you'll learn in the next chapter, you should at least contribute as much as your employer matches, if they offer this perk.
Review your fund options (which may be limited). Many company plans don't offer index funds. In that case, use what you've learned in this chapter to find funds that have low costs and are widely diversified. You might be able to create a lazy portfolio (Lazy Portfolios) from your options, but often your only choice will be a lifecycle fund (Single-Fund Portfolios), and sometimes you won't even find that!
If your employer-sponsored plan doesn't offer a lot of choices, ask HR if it's possible to get more. They might say "no," but then again, they might expand the company's menu of mutual funds. Remember, it never hurts to ask!
Note
Systematic investing is a good way to make regular investments, but if you have a