Performance

You’re gonna love this. The market “outperforms over 85% of all mutual funds.” So, if you ask what type of mutual fund should I invest in, it’s definitely a stock index mutual fund.

We like the Vanguard S&P; 500 Index fund, which by the way, was the very first index fund. Since this fund started up years ago, several other stock index funds have popped up. Because of this, you need to be careful when choosing an index fund because you’ll find there are several fund companies that charge higher fees than is necessary.

Fidelity and Vanguard are good fund families. Vanguard in particular is known for its low expense ratios. Expense ratios are VERY important because they are the fees the fund charges you which reduces your rate of return. So, you’ll want to make sure you compare the expense ratios of similar index funds.

Dollar Cost Averaging (DCA)

We DCA and you should give serious consideration to this to. You are DCA when you buy a fixed dollar amount of a stock or fund on a consistent schedule. For example, we invest a set dollar amount monthly into our mutual funds regardless of the funds price, rate of return or the state of the economy.

Using dollar cost averaging, you’ll find that more shares are purchased when prices are low, and fewer shares are bought when prices are high. The end result is that over time the average cost per share of the security will become smaller and smaller.

Right now the economy is in a recession and we’re still investing monthly into our stock index funds. Why? Because we’re bottom feeding and able to buy more fund shares because they’re priced lower.

When the market goes back up, which it will as it has done historically, we will have accumulated a great many more shares valued at higher dollar amounts.

As Warren Buffett states “Be fearful when others are greedy, and be greedy when others are fearful.” He’s also a big believer, as are we, that the market has upswings and downswings.

As Warren believes, right now, we’re in a recession. But the market will recover as it has proven in the past. So, you really don’t want to run with the herd; run away from it using DCA.

Stock versus Bond Funds

Going with a stock versus a bond fund is your choice based on how risk adverse you are and taking into account your investment horizon. Generally, if you can allow for your investments to grow for 5 years or more, and have at least 15 years until you need the money, you’ll want to weight your investment portfolio more towards the stocks.

Historically, you’ll find that stocks have significantly outperformed bonds. Stocks are more volatile than bonds, but if you use a longer term buy and hold strategy along with DCA, you’ll do well as we have with stocks.

Leave a Reply