Simple Solutions
Shortcuts to managing your finances that are guaranteed to save you time and money.
From Kiplinger's Personal Finance magazine, September 2005
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Invest the easy way
No time to monitor your investments?
Simple solution: Put your money in index funds.
Index funds are -- dare we say it? -- boring. But boring is beautiful for Erin and Jeffrey Hager, an Austin, Tex., couple whose investment portfolio is filled with nothing but index funds. "We don't have time to look in the paper every morning to see what's going up and what's going down," says Erin, 35.
Many investors would do well to follow the Hagers' example. Over the past ten years, the Russell 3000, a broad-based stock index, has beaten 68% of all actively managed mutual funds. What's more, Standard & Poor's 500-stock index, which is dominated by large companies, has surpassed 82% of all large-company funds.
You, too, stand a good chance of beating most actively managed funds if you stick with an indexing strategy. Instead of trying to outstrip the stock market, index funds aim to match it by mirroring one of a number of stock indexes that are used to gauge the market's performance. That means you don't have to worry that a successful fund manager will depart or lose his touch (as you might with a fund run by a star stock picker).
And index funds -- at least the good ones -- are cheap. Vanguard and Fidelity, whose index funds are among the least expensive, charge annual fees that generally range between 0.1% and 0.33%. That compares with more than 1% for most actively managed funds, plus a sales charge if you buy through a broker. What you save on expenses puts more money in your pocket.
Of course, you need to buy the right index funds. Start by putting 70% of your stock portfolio in Vanguard Total Stock Market fund (symbol VTSMX; 800-635-1511), which tracks the entire U.S. stock market. Then invest 25% in Vanguard Total International (VGTSX), which covers the remainder of the globe. Earmark the final 5% to Vanguard REIT Index (VGSIX), which invests in high-yielding real estate investment trusts. Add a good tax-exempt bond fund, such as Fidelity Spartan Intermediate Municipal Income (FLTMX; 800-544-8544), and you're done.
That's pretty much how the Hagers invest. Jeffrey, 37, is a radio personality with KAMX in Austin. "He'll probably have to retire earlier than most people because nobody wants to hear a 65-year-old deejay," says Erin, who stays home with the couple's 3-year-old daughter, Raleigh. "So we have to do this right."
-- Steven T. Goldberg