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How to choose mutual funds to invest in (lemm.ee)

submitted 10 months ago by scytale@lemm.ee to c/personalfinance@lemmy.ml

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I've been on an HSA+HDHP for a couple of years now and only realized recently the interest earned from investing HSA money is also tax free, so I want to start investing a part of my savings and see how it goes. I have 2 options, Betterment or Mutual Funds. I figured I'd try the latter to avoid fees, but I'm not sure which funds to choose. My HSA currently provides 30 fund options.

I see people mentioning Vanguard a lot so I spread out my initial investment into 25% chunks across 4 different Vanguard funds. How did I choose them? Well I literally just looked at the performance graphs and selected the ones that historically went up steadily without major dips. As a total noob, how can I improve my choices? Is there a simple way to decide without having to dive deep into the stock market?

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[–] sugar_in_your_tea@sh.itjust.works 1 points 10 months ago (1 children)

Just to reiterate, having more funds doesn't mean you're more diversified. For example, let's say you have the following (ETF/Mutual Fund tickers):

VOO/VFIAX - Vanguard's S&P 500 fund
VTI/VTSAX - Vanguard's Total US Market fund
VV/VLCAX - Vanguard Large Cap CRSP fund
VONE - Vanguard Russell 1000 ETF

These are all basically the same thing.

Let's compare to just two funds:

VTI/VTSAX - Vanguard Total US Market Fund
VXUS/VTIAX - Vanguard International Total Market Fund

This is way more diversified because VXUS/VTIAX has a lot of stocks outside the US, so if the US tanks relative to the rest of the world, you'll be better off. You can even make it just a single fund, VT/VTWAX, which gives you global exposure (something like 60/40 US/international).

[+] scytale@lemm.ee 1 points 10 months ago* (last edited 1 month ago) (1 children)

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[–] sugar_in_your_tea@sh.itjust.works 1 points 10 months ago* (last edited 10 months ago) (1 children)

Yup, VFIAX (the Vanguard S&P 500 index) is what everyone is saying.

Here's what you're invested in:

VFIAX - S&P 500 fund; 500 biggest companies in the US
VEIRX - basically a "value" tilt version of the S&P 500, but with far fewer companies (~200 vs 500)
VSMGX - conservative, properly diversified fund - 60% in stocks (diversified with international stocks), 40% in bonds
VUSXX - basically cash

So overall, here's what you're looking at (back of the napkin math):

35% - cash and bonds
55-60% - US stocks
5-10% - international stocks

So you're pretty lightweight on international stocks.

Personally, here's what I'd invest in:

VITSX - Total US market, meaning there are smaller companies in there as well; 85% of it is the same as the S&P 500, so it's not that different, but small companies have historically done better than big companies, so it's good to have some of that exposure
VTMGX - pretty much total international market

To be evenly diversified globally, you'd do something like 60% VITSX and 40% VTMGX, but I personally think the US will outperform, so I do 70% US and 30% international.

If you're risk-averse and feel like you'd sell if there's a market downturn, you can add some bonds (VBTLX) and put something like 10-20% in it (assuming you're young-ish; if you're over 50, increase it to 30-40%). But honestly, there's not much point if you'll just set it and forget it. If you want something super simple, VASGX looks pretty decent (20% bonds, so a bit less extreme fluctuations in a downturn).

A lot of people honestly just go 100% S&P 500, because a lot of those companies do business in other countries, so you're kind of getting international exposure. I personally prefer explicit international exposure though, hence my recommendation.

[+] scytale@lemm.ee 1 points 10 months ago* (last edited 1 month ago) (1 children)

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[–] sugar_in_your_tea@sh.itjust.works 1 points 10 months ago

No worries!

One thing I didn't mention is value vs growth, and you'll see that a lot. Basically, "value" means companies that are undervalued by the market, and "growth" means companies that the market believes will continue to grow (i.e. higher dividends, established brands, etc). Funds that provide one over the other are betting that one will outperform the other, and people are on either side. I think that if picking winners was that easy, everyone would do it, so I instead just try to build a balance.

But anyway, there are a few resources I really like that can help if you want to dig further:

Bogleheads wiki - Jack Bogle started Vanguard, and this wiki is dedicated to low-cost, index-fund investing; there's a ton of great info there, and it goes pretty deep
Investopedia - I don't recommend browsing the site, but if their content shows up on a regular search, they're usually pretty high quality
The Money Guy - YT channel more about personal finance than investing, but they have some great videos and I rarely find something I disagree with; I think their advice is much better than Dave Ramsey (and Ramsey's investing advice sucks, steer clear), and I haven't found a better, general purpose PF resource on YouTube

Have a great day, and don't hesitate to make another post here if you have questions.