VTI (Vanguard Total Stock Market) + BND (Vanguard Total Bond Market).
If you're saving for retirement, 30% BND + 70% VTI is a good starting point. Bonds grow slower than stocks, but stocks are riskier than bonds. Both grow over time.
VTI charges a 0.03% fee/year.
BND charges a 0.03% fee/year.
These are very low fees. The management style is hands-off (which is why its so low): VTI buys every stock in the stock market proportional to their size. BND buys every bond in the bond market proportional to their size (ie: mostly US Treasuries, but also some company-debts). Since these are broad and diversified, you should perform decidedly "average", which is fine.
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If you're saving for something near term (ex: new car, new house) that's within 5 years, you'll want to be more-bonds and fewer-stocks, 50/50 or maybe even 70% bonds / 30% stocks
Research bonds and stocks very closely. Learn their details, how companies work, dividends / profits are distributed (in particular, learn the theory between dividends vs capital expenditures vs stock buybacks).
For Bonds, learn about inflation risk, interest-rate risk, and more.
Once you understand the basics, feel free to branch out and put small amounts of money into specific stocks (or specific stock-sectors).
You've got some great advise that straight out of the investment handbook and has served investors very well for the last 100 years.
But, the mainstream investment handbook is a little out of date. With a 50 year Bond bubble brewing, bonds are close to an all time high right now, which means interest rates are close to all time lows. This means, you'll get very low returns from bonds, much lower than the last 50 years and almost certainly won't keep up with real inflation. Much of the bond returns from the last 50 yrs were from increasing bond prices/decreasing interest rates. those days are over. so, now we only have the yield left, which averages about 2% or so.
In a secular low rate world or ever low rates, risk assets, unfortunately are the only life boat available to rescue us from the onslaught of inflation. :(
The amount you can buy for I-bonds is too small for a retirement portfolio (which, i think needs to have a total asset of around $1million to make retirement self-sufficient).
I-Bonds are super-safe since they have a minimum (currently a 0% minimum) rate. TIPS can go negative during periods of deflation. But if you actually want an inflation hedge, then TIPS exist for that reason.
>If you're saving for something near term (ex: new car, new house) that's within 5 years
A more conservative suggestion that I read once and have mostly adhered to says that any money you expect to need in the next five years should not be in the stock market at all.
>BND (Vanguard Total Bond Market)
Individual bonds and bond funds are two quite different types of investment and should not be considered equivalent.[0]
> Individual bonds and bond funds are two quite different types of investment and should not be considered equivalent.[0]
Bond funds move based off of the sum of bonds that are inside of them.
Much like we programmers study assembly code to understand the machine, even though we write code in C++ or Javascript, any bond fund owner should study bonds to understand the underlying mechanics and risks of the overall fund.
the most important thing is diversification. First of all, max out your 401K immediately and then get an IRA if you're income is low enough. Within there buy the SPY and maybe VTI (you want as much diversification as possible). Outside, of the 401K and IRA, you also buy SPY, VTI (but remember, you won't be able to sell that in any year where you make income above 40K because of "capital gains", lolz "gains", history 100 years from now will call that a misnomer.)
If you invest in GOLD, do it in an IRA otherwise you will be hit with 28% collectibles tax, no matter how low your income is.
Get some bitcoin (or GBTC in an IRA), the two wrongest allocations for bitcoin are 0% and 100%, but many financial professionals today will recommend 3-5%.
Disclaimer: I know nothing and This is NOT financial advise.
Most importantly, try not to pick winners. that's a fools errand. Pros that know absolutely everything can't even beat the market, so just try and be average. If you can be average with the VTI, then you'll beat the returns of most people who try to pick winners.
There is no high-income restriction on contributing to a traditional IRA. Only the possible tax deduction is limited, however earnings on any contribution are still fully tax deferred.
>, you won't be able to sell that in any year where you make income above 40K because of "capital gains"
Let's clarify: for U.S. tax purposes, if your taxable income (which is much lower than gross income) as a single filer is below about $40K (double that if married filing jointly), your tax rate on long term capital gains is zero (for now). But even if you go over that, you still receive a highly favorable rate of only 15%, it doesn't go higher than that until taxable income gets up around $450K, so if you must sell with a gain, it's still quite tax-friendly. (Unfortunately, some states such as California have no special capital gains tax rate).
> There is no high-income restriction on contributing to a traditional IRA. Only the possible tax deduction is limited, however earnings on any contribution are still fully tax deferred.
Yep. Which is why I think it's a great little bucket for REITs and perhaps dividend stocks where distributions would have counted toward your annual income but don't when you use the TRAD IRA.
Dividends are taxed at max 20% (AFAIK) but REIT dividends are taxed like income at your highest marginal rate, so if your marginal rate is high enough (above 20%) you may want to buy REITs in a traditional IRA.
15%+ (CA has more added on) is not favorable when it's on your principle. If your $$ go up by x10 but your purchasing power remains the same, then 90% of your principle is being taxed at 15%. The term "capital gains" is becoming antiquated, going forward. Sure, the last 50 years have been great but no one is expecting the future to look anywhere near as rosy as the last 50 yrs. and so, the pizza keeps getting sliced into more pieces but you still have the same amount. The dollars in your retirement account may increase drastically but if the purchasing power is exactly the same, then you haven't actually gained anything. It's only in terms of accounting, that it's said to have made a capital gain: it's not a real gain.
Most importantly, try not to pick winners. that's a fools errand.
Trying to pick winner is fun tought and it's a great way to learn. I don't think that there is something wrong with having a few percentage (<10%) allocated to play the market like it's a casino.
But start with index and etf because if you start with individual stock you are already over 10% ;)
The problem is that uncontrolled emotions can lead to far worse losses than you could possibly gain so most people should just keep their urges in check and follow a boring strategy.
There's no great answer here. Even those advocating for something like a two or three-fund portfolio have to contend with great arguments for 100% equity allocations (https://www.gocurrycracker.com/path-100-equities/ for example - haven't vetted numbers myself).
But I do think I have some 100% guaranteed "advice" (this isn't financial advice and you would be stupid to listen to anything I write here) which is that you should always max out tax-advantaged accounts. It will depend on your income level and specifics, but you should basically max out your 401k and any IRA vehicles you have access too (depending on income level) with whatever you do. While the regulatory environment can and will change, based on what you know today and can predict, these accounts are huge up-front 0 risk ways to save even more money.
With all of that being said, generally it's advised to follow something like a 2 or 3 bucket portfolio with a mix of total US stock market (or S&P500) making up something like 90% at your age and then reducing by 10%/decade + emerging market funds + bonds. Allocations depend on goals/ideas.
Speaking of goals, the #1 thing to do is figure out your goals. Want to be financially independent at 35? Well you will want to put money into different accounts and probably different assets. Want to "work" until you are 50? That's a different strategy. Etc.
When it comes to investing, you don't get rich and then all of a sudden you are rich.
If it were easy, everyone would be doing it. Since it is easy to do what everyone is doing, your investments will not do better that the market. Therefore, if you want to beat the market, it is difficult. Consider the most efficient easy strategy to be minimizing fees.
