Friday, September 14, 2007

My Mutual Fundimony

My path to mutual funds came my senior year of college in my Investments class. In that class, we explored various ways to invest in the stock market. My professor also recommended that first time investors start by using mutual funds due to the small start up costs and instant diversification. As he explained, there are many types of mutual funds with various fee structures. He added that fund managers (the smarties who buy and sell the various investments of you specific mutual fund) are considered successful if they “beat the market” (get a better rate of return than the S&P 500 or the Dow Industrial Average). Apparently, it’s actually hard for a mutual fund to beat the market due to the fee structure.

For that reason I decided to go with Index mutual funds. If I (via my fund manager) couldn’t beat the market, I’d join it. My first big expenditure after college wasn’t a new car (Lord knows I need one) or a house…it was the Vanguard S&P 500 index mutual fund. Index funds basically follow exactly the things they are indexing. And S&P 500 index fund will go up and down as the S&P 500 goes up and down as days pass. Another reason why I picked the S&P 500 index was that the fee structure was sooo low. I don’t know if there are mutual funds out there that have lower fees since the managers don’t really manage much; they just adjust the fund to whatever is happening with the S&P 500. Also, you can buy directly from Vanguard and don't need to use a broker which saves me even more money.

Since that time, I have also started indexing internationally using a Vanguard international index mutual fund. Last year I got a little nervous about the U.S. dollar and our trade deficit so I decided to diversify to other counties and currencies.

Let’s talk Vanguard.

I have had nothing but good experiences investing with this company. I chose this company because they are the rockstars of indexing. They invented it, they specialize in it, and they have the absolute lowest fees (I’ve found) when it comes to index funds.

I say all this stuff never having any contact with a real person at Vanguard. In fact, that’s one of my favorite parts. Once I decided to buy from them I never needed to talk to them. I sent a wire transfer (although could be done with a check) and bought some shares. Since then, I buy more shares each paycheck (via direct deposit that they set up) and never have to worry about if they got my check or if I sent a check or any of that stuff.

It’s so easy. If I can do it…anyone can, seriously.

Other recommendations…My Dad uses and recommends using Charles Schwab to buy mutual funds and ETF’s and keep track of his investments. I couldn’t afford that service though since I didn’t have much to invest. As for specific funds, Dodge & Cox has great mutual funds that perform really well. In fact, I tried to buy into some of they funds but they were closed to new investors. I hate it when that happens.


sarah anne said...

When I worked for a top financial advisor in college, we recommended a ton of VanGuard MF, they're a great product--especially the index fund and the international fund. We also recommended Ameriprise Financial, Fidelity, Templeton, and Goldman products... those are the ones that I saw the most in portfolios. is a great resource to compare companies, funds, and get general info.

Kara said...

you go girl!

anne said...

i love this! so kara, you're going to be a millionaire by the time you're...?

Doreen T. said...

Now I'm even MORE impressed!! You definitely have your dad's "touch" for investing. And I also know how giving you are with the $$$ God has gifted you with.

Aaron Fry said...

Hey Kara - Crazy how I ended up reading your blog but...just thought I'd chime in. You should take a peek at T Rowe Price too. I've got their Latin america fund (PRLAX) as a big part of my portfolio and it's been a great ride - last year did 52% and this year is at 28ish so far - Also - the New Era fund is up over 30% for the year so far...
happy funding.

Aaron Fry (Jessica's bro-in-law)