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Old 03-03-2005, 11:28 AM
player24 player24 is offline
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Join Date: Feb 2005
Posts: 190
Default Re: Buying up some mutual funds.

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I'm looking to invest a few thousand dollars in some mutual funds now, and potentially (hopefully) alot more in the near future. I've had my eye on the Vanguard funds since they look like they've done consistently well. Specifically I was thinking about the wellington funds or the windsor funds. Is there anyone who thinks my money would be better invested elsewhere? I'm willing to accept a moderate level of risk.

Also, if I do go with Vanguard, it would probably be best for me just to open an account there instead of getting an account through an online broker like Ameritrade right?

Thanks.

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My two cents - First off, within the equity mutual fund universe, you can choose between actively index funds (which attempt to replicate the performance of a broad market index such as the S&P 500) or actively managed funds (which utilize a team of analysts and portfolio managers to try to select securities which will outperform the market). Index funds come with much lower expense ratios (they are relatively inexpensive to manage) and they generally achieve their objective of providing "market" performance. Vanguard and Fidelity are the leaders in this space and have a variety of options with very low expense ratios (under 0.2% per annum). Personally, I own FSTMX (Fidelity) which replicates a total market index (thousands of stocks). A less diversified and/or actively managed fund will have more a more volatile return profile than a well diversified, passively managed index fund.

For experienced investors, I would advise ownership of a market index fund (or ETF) as a portfolio cornerstone which can be supplemented with careful selection of individual stocks or actively managed funds (and/or an active short-term trading strategy, if you know how to apply technical analysis).

If you are just starting out, begin with a low cost index fund from Vanguard or Fidelity. If you branch out to actively managed funds, be careful not to assume that recent historical performance is a reliable indicator of future performance, avoid load funds unless you value the services of a financial advisor, pay attention to expense ratios (international funds are highest, small cap is high, large cap domestic should be lower), and avoid extremely large funds - these $5 billion +funds are constrained by their size and cannot pursue their strategy in a value-added manner.
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