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?
You can have it all with one brokerage in one fund and still be diversified. Suggest reading up on the 3 fund portfolio or boggle head.
S&P 500 is top 500 US companies. Many folks consider that diverse. You can also probably find a US Total Market fund. That will be even more diverse as it will include small and mid size companies in addition to the top 500.
Alternatively, even more diverse would be a Total Market fund. These typically include international companies, and represent the biggest diversification you can get.
No need to worry about Vanguard versus Schwab . The underlying stocks of the fund is what matters.
Thank you! Your explanation clicked in my head. I thought Vanguard vs Schwab, etc. meant different underlying stocks; didn’t understand that’s the brokerage. I will definitely take everyone’s advice and look at the S&P 500 (I think that’s one of 4 I chose, I’m not at may desk right now).
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):
These are all basically the same thing.
Let’s compare to just two funds:
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).
Thanks. Here’s a screenshot of my options:
https://files.catbox.moe/dezord.png
You can see where I randomly allocated each of the 25% of my investment. Is “Vanguard 500 Index - A” the same as the S&P fund that everyone is recommending? And should I just move everything there instead? I’m guessing I need to choose one of the 2nd and 3rd in the list for the international side so I’m not overly dependent on the US market?
Yup, VFIAX (the Vanguard S&P 500 index) is what everyone is saying.
Here’s what you’re invested in:
So overall, here’s what you’re looking at (back of the napkin math):
So you’re pretty lightweight on international stocks.
Personally, here’s what I’d invest in:
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.
Thank you so much for the very detailed information! This is honestly the best direct advice I’ve gotten that is understandable for someone like me who knows nothing about it. I will use this info as a starting point and re-allocate my funds accordingly.
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:
Have a great day, and don’t hesitate to make another post here if you have questions.